Contemporary Issues in Financial Services Essay - 1

Contemporary Issues in financial Services - Essay ExampleFinancial intermediaries bring together borrowers and lenders in financial markets by interacting with savers and borrowers simultaneously and by producing a set of services facilitating the transformation of liabilities into assets like transforming deposits into loans. Though financial markets cigaret also bring together lenders and borrowers directly, still the existence of financial intermediaries is of utmost importance. This is because the direct lending draw close between savers and borrowers has proved inefficient as this address can be directly traced to the barter system where there is always a need for copy coincidence of wants. This function of transformation is termed as intermediation. finished this process, financial intermediaries facilitate savers and borrowers to have indirect lending and borrowing. Financial intermediaries can be banks, building societies, financial advisor or broker, restitution compa nies, life insurance companies, mutual fund and pension fund. Firstly, national bank serves as a financial intermediary by accepting deposits and placing in various securities and mortgage loans. By doing this, individual investors are linked by banks with financial markets and demanders of credit. The intermediaries actually act as a middleman between firm raising funds and investors (Rampini & Viswanathan, 2012, pp.1-2). requirement of financial intermediary Though financial markets can also bring together lenders and borrowers directly, still the existence of financial intermediaries is of utmost importance. This is because the direct lending approach between savers and borrowers has proved inefficient as this process can be directly traced to the barter system where there is always a need for double coincidence of wants. People with savings will want to lend the amount available with them for a particular time period. For this, one will have to go on a person who needs approxi mately the same amount of fund for the same time period. Searching of such a person is a intemperate task. Again, direct lending necessitates a negotiable contract. Transactions of repayments of principle and interest are required to account for. Direct lenders will have limited mogul to diversify and minimum exposure to default risk by lending small amounts to many borrowers but the transaction costs would be relatively higher. present financial intermediaries reduce the transaction costs and minimize risks. Thus, it improves the economic efficiency. Generally, the financial intermediaries perform the following functions i. It facilitates transactions. ii. It creates a portfolio. iii. It spreads risks over time. iv. It eases household liquidity constraints. v. It reduces the problem of asymmetric information. In addition to intermediation, sometimes brokerage function also takes place by financial institutions in bringing together buyers and sellers to complete financial transa ctions. Stockbrokers narrow down in brokerage to perform such task. Types of financial intermediaries Fee based or advisory financial intermediaries These financial intermediaries charge a fee for rendering advisory financial services. Their services include i. Issue management ii. Underwriting iii. Portfolio management iv. Corporate counselling v. Stock broking vi. Credit syndication vii. Mergers and acquisitions viii. Debenture trusteeship ix. Capital restructuring summation based financial intermediaries The specific requirements of customers are met by these financial intermediaries. They provide the required asset or finance for rent or interest respectively. The income is clear by them from