Financial Intermediaries and their roles

Financial intermediaries (FIs) are ones who intermediates between savers and investors.They mobilise savings as well as lend money .Their liability are the deposits and funds that investors have placed with them ,that is, their liabilities towards the ultimate saves. FIs obtain funds by issuing claims against themselves to the market participants and then investing them too. The investment in the forms of loans or securities are known as direct investment  and the funds provided by the investors to the investment company are called indirect investment.

FIs are the firms that borrows from consumers or savers lends it the to the companies which lack financial resources for investment. One major reason why FIs are important is the fact that the overwhelming proportion of every rupee comes directly from banks.Banks are predominantly an important source of funding in most of the countries.

Major role played by financial intermediaries are:

• Reducing transaction cost
• Reducing asymmetric information
• Facilitating transfer of risk
• Providing services in terms of participating in capital markets

Some experts find that FIs have greater level of information than investors, an intermediary can signal its informed status to the investor by itself investing its wealth in assets about which it has special knowledge.

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