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Financial Intermediation

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Table of Contents INTRODUCTION 2 So what is financial intermediation? 2 a) The brokerage function: 2 b) The asset transformation function 2 c) The Risk evaluation and management function 3 Why are financial intermediaries important? 3 THEORIES OF FINCANCIAL INTERMEDIATION 3 Informational Asymmetries 3 Transaction Costs Theory 4 Regulation 4 HISTORICAL DEVELOPMENT 5 Origin of Financial Intermediation 5 EVOLUTION OF FINANCIAL INTERMEDIATION 6 THE FUTURE OF FINANCIAL INTERMEDIATION 7 TRENDS IN FUTURE FINANCIAL INTERMEDIATION 8 Regulation (Deregulation) 8 Revised regulatory framework 8 Revised reporting standards and accounting 8 International Monitoring and Oversight 9 Effects on Insurance 9 Technology 9 New financial innovations 9 Globalization 9 Presence 9 Scale 10 Increased Government involvement 10 IMPLICATIONS 11 CONCLUSION 11 BIBLIOGRAPHY 12

FINANCIAL INTERMEDIATION
INTRODUCTION
Financial Intermediation is a crucial and pervasive feature of all world economies. But as Franklin Allen (2001) observed in his AFA presidential Address, there is a widespread view that financial intermediaries can be ignored because they have no real effect. But this cannot be true, in my opinion, savings-investment process, corporate finance decisions, and consumer portfolio choices cannot be understood without studying financial intermediation.
So what is financial intermediation?
When talking about financial markets we generally are talking about two kinds of markets, capital and money markets. In these markets, according to O. Gwilym (2011), the participants can be categorized into two areas; (i) deficit units who wish to spend more than their current income (borrowers) and; (ii) surplus units whose current income exceeds their current expenditure.
Financial Intermediation is thus a process which involves surplus

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