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1. Explain the Main Reasons Why Financial Markets and Financial Intermediaries Exist.

In: Business and Management

Submitted By deadman10
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Explain the main reasons why financial markets and financial intermediaries exist.

Why are banks special? A bank is a financial intermediary that offers loans and deposits, and payment services. In the past decade the banks have become a very important part of the economy. Banks are financial intermediaries, financial intermediaries and financial markets main role is to provide a system by which funds are transferred and allocated to their most productive opportunities. Banks need money and they get the money from people who invest in the bank and people who save their money in the bank, but the money does not stay in the bank it has to be allocated to people or companies with deficit funds (borrowers). In doing so they increase the economic efficiency by promoting a better distribution of resources. How can the transfer of wealth from surplus units to deficit units occur?
There are two ways that the transfer of wealth can happen its either direct finance or indirect finance. Direct finance is the transfer of funds from surplus units to deficit units via financial markets. Indirect finance on the other hand has a different procedure as the transfer of funds does not occur directly from lender to borrowers as the financial intermediaries step in.
Why is there a need for financial markets and why do they exist?
Financial Market exists in order to facilitate the relations between providers of capital such as savers and investors and users of capital such as companies and government .A Financial Market exists to allow transaction with mutual benefit to take place between both parties. It exists in order for investor and investment seeks to conduct business easily.
The financial markets provide both the buyer and the seller with a fair evaluation of the asset that they are buying or selling this is known as the pricing function. The financial markets are also...

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