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Financial Intermediaries


financial Intermediation is the process of channeling funds between surplus and deficit agents. Financial intermediary on the other hand is a form of financial institution that serves as middleman between surplus and deficit agents. The primary role of financial intermediaries is to channel funds from people with extra money, usually called savers or lenders, to those people who want to borrow money (borrowers).

Financial intermediaries play an important role in the flow of money in the financial industry. Without their services, it would be very difficult for investors to meet people who would want to borrow their money for investments. Financial intermediaries work with investors in the process of looking for investments or buying securities. Financial intermediaries usually make money from fees and commissions.

There are different types of financial intermediaries. Just like some stock brokers, they can or cannot give you specific information or advice on certain topics. The amount of information they would give you depends on the agreement between you two, or the type of working relations that you have. Some financial intermediary only functions as a middleman between lenders and borrowers, and are not obliged to give vital information to either parties.

In the world of finance, there are a lot of individuals or institutions that can play the role of a financial intermediary. These individuals or organizations may have the network or connections that can make a meeting between a saver and a borrower work and make a deal. Some individuals or organizations that can do the role of financial intermediaries are:

• Banks and Credit unions
• Financial advisers
• Insurance Brokers and Insurance Companies
• Investment Bankers
• Traders and Portfolio Managers
• Wealth Managers
• Mutual Fund Companies
• Stock Brokers
• Pension Funds

Due to the importance of their roles and the amount of money involved in their trade, there are strict laws and regulations that financial intermediaries should follow. Some State also requires financial intermediaries to have a certain amount of money or a list of assets on hand at all times just for security purposes. Investors are also advised to conduct business only to qualified and licensed brokers or agents or to registered banks and other financial institutions.

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