Role of Financial Intermediaries

These flashcards cover key concepts related to the role of financial intermediaries, highlighting their functions and significance in financial markets.

Financial Intermediaries

Institutions that act as a bridge between savers and borrowers, channeling funds from those with surplus capital to those in need.

Reduction of Transaction Costs

The process by which financial intermediaries decrease transaction expenses, making financial transactions more efficient and less costly for individuals.

Asymmetric Information

A situation in which one party in a transaction possesses more or better information than the other, which financial intermediaries help to mitigate.

Delegated Monitors

A term used by economist Diamond to describe financial intermediaries that assess creditworthiness and monitor borrowers.

Risk Transfer

The process of shifting risk from one party to another, facilitated by financial intermediaries through products like insurance and derivatives.

Investment Solutions

Packaged financial products and portfolio management services offered by financial intermediaries to simplify capital market participation for individuals.

Economies of Scale

Cost advantages gained by financial intermediaries through spreading fixed costs of information gathering and asset evaluation across many clients.

Financial Innovation

The development of new financial instruments and products by intermediaries to meet growing market demands.

Mobilization of Savings

The process by which intermediaries collect savings and allocate them to productive investments to promote economic growth.

Promoting Financial Inclusion

The role of modern financial intermediaries in extending financial services to underserved populations, enhancing access to financial markets.