Discuss the major macro benefits of financial intermediaries.
What role does the government have in the...
Discuss the major macro benefits of financial intermediaries.
What role does the government have in the credit allocation
process?
Solutions
Expert Solution
Money supply transmission: depository
institutions affect the level of money supply growth in the
economy. When the fed increases money availability to banks, the
money supply increases but the extent of money supply growth is
affected by bank’s decisions to lend the increased supply of funds.
If the banks are not lending the increased money, the given
increase in funds by fed can result in a change in the money supply
of the economy.
Credit risk: the financial
intermediaries generally price risk & allocate capital only to
those whom they believe can generate a high rate of return to the
lender for the risk that lender bears in loaning the money. The
borrower’s condition is also monitored after providing the loan. A
good economy must have the sound mechanisms for allocating the
capital. In capitalist countries, financial intermediaries &
markets allocate capital only to those users of high value thereby
maximizing the economic growth. The role of government is to ensure
risk disclosure & fair practices of all involved. In communist
& socialist countries capital is allocated according to current
political agenda & strong economic growth is rarely seen in
these countries. The government cal also allocates credit to other
areas like housing, farms & for development of small business
etc.
Intergenerational wealth transfers and risk
shifting: Pension funds and insurance firms allow
investors to transfer wealth through time, while avoiding taxation,
and/or allow investors the ability to choose which risks in their
life they will bear and which they will insure.
Payment services: the ability of
market participants to store & quickly move large sums of money
at low cost & risk can encourage greater investment & also
lower the overall cost of funds in the economy.
outline the role of financial intermediaries and their
functions in financial markets. what benefits of the financial
system do financial intermediaries provide?
Task 1:
Financial intermediaries are playing a very important role in
any financial system. Critically discuss the function of financial
intermediaries in in the financial system of a country. The
discussion should include the following:
Introduction with a proper overview of financial system and the
financial
intermediaries.
Critically discuss the types and characteristics of financial
intermediaries.
Critically analyse the disadvantages of financial
intermediaries.
Critically discuss the functions of financial intermediaries
in the financial system.
Proper conclusion...
A bank is an example of a financial intermediary. Explain the
role of financial intermediaries and
their usefulness to the private investor ( At least 500
words)
QUESTION 3 By using practical examples what are the role &
uses of financial intermediaries with emphasis on Currency Swaps
(NAD/USD) with comparative advantage argument?
Briefly discuss why it is necessary to have financial markets
and financial intermediaries.
(Hint: base your answer on what we have discussed in class)