what are the usefulness of financial intermidiaries?

    Explain  the roles of financial intermediaries and their usefulness to the economy.

    +1  Views: 990 Answers: 1 Posted: 12 years ago

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    Financial intermediaries are institutions that act as middleman between investors and firms raising funds.  They are often referred to as financial institutions.

    1.  Lending through intermediaries is a lot less risky than lending directly.

    2.  Financial intermediaries offer savers liquidity.  Liquidity being the ability to convert assets such as houses into cash very quickly.

    Their role for the economy is to provide liquidity or the ability to "grease" the joints of the economy in order that various businesses and individuals can function smoothly with regards to having cash available.

    We had a big shock at th beginning of 2008 when all the auction-rate securities froze as liquidity dried up, so much so that the entire market of short term notes came to a griding halt.  The process truly shocked the economy and all the credit became unavailable to corporations and inidviduals.  Without cash, the economy stalled.



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