Functions and role of financial intermediaries in English

What are the functions and role of financial intermediaries?

Contents

Functions and Role of Financial Intermediaries

Functions and role of financial intermediaries can be discussed as under:

1. Savings Mobilisation : Saving Mobilisation and promotion of investment are functions of the financial intermediaries as these are part of the organised financial system in India. The easy availabililty of financia inputs promotes the growth process.

There are two types of financial intermediaries in the capital market:

(a) Depositing intermediaries e.g. credit unions, mutual saving bank etc.

(b)Contractual intermediaries e.g. pension funds, PPFs, life insurance companies etc.

2. Function as Brokers of Loanable Funds : Financia intermediaries buy primary securities to lend to borrowers. They issue indirect securities to collect fund.

3. Financial Intermediaries Provide Liquidity: Financia intermediaries converts security in money. Thus they provide liquidity facility

4. Capital Formation : Financial intermediaries play significant role in capital formation and economic development. They acquire benefit by making investment of collected savings.

5. Creation of New Securities: Financial intermediaries make new securities. They make non-monetary financial securities. They are also helpful in increasing the stock of financial securities.

6. Financial Intermediaries Reduce Risk : Financia intermediaries functions as broker between ultimate lender and ultimate borrower and reduce risk of lenders.

7. They Help to Various Groups: Financial intermediaries provide help to the following groups:

(i) Providing Help to the Government of India by dealing in the securities issued by him.

(ii) Providing help to state governments and local bodies by purchasing. bonds issued by them.

(iii) Financial intermediaries provides consumer credit loan, mortgage loan to household sector.

(iv) Financial intermediaries purchase shares, debentures, bonds, et from non-financial business concerns.

8. Economies to Large Scale: Financial intermediaries create economies to large scale. They make dealing at large scale. They are modern machines and equpments.

9. They Establish Equilibrium in the Demand and Supply of Financial Assets and Securities: Financial intermediaries deal in success securities having more impact in stock market. Thus they establish equilibrium in the demand and supply of financial assets and securities.

10. They Help in Economic Development : Financial intermediaries play significant role in economic development.