You may have heard of financial intermediaries, but do you actually know what they are? In this article, we’ll go over what a financial intermediary does as well as the benefits of using one.
What is a Financial Intermediary?
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In its simplest sense, a financial intermediary is a group or individual who is a middleman between borrowers and investors to help make sure the best interests of both groups are met. Another definition of a financial intermediary is someone that helps execute a financial transaction between two different parties.
What Do Financial Intermediaries Do?
The main jobs of a financial intermediary depend on the purpose they were needed in the first place. Here are a few examples of functions they provide:
• An intermediary can provide a place for clients to store money and assets
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• They can provide a place where clients can store excess money
• They give counsel and advice on how and where to invest money
• They can convert savings accounts into investments
• They can provide both long and short term loans to help finance investments and assets
For the most part, however, all of the functions of an intermediary like this are meant to help maximize the returns of clients while reducing risk.
What Are The Benefits of a Financial Intermediary?
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There are actually quite a few benefits that are provided by a financial intermediary. They include the following:
• The biggest thing that financial intermediaries can provide is a savings on cost and time. When you find the right lenders, you can save a ton of money in the long run. Since financial intermediaries are specialists in that field, they can pair you with the right people while you focus your time where it’s really needed.
• Most financial intermediaries can help you lower the overall risk of your investments. While investments handled on your own are subject to more risk, having an experienced partner can help you to wisely move your money around.
• A financial intermediary also offers economies of scale. This means that when you need to borrow and lend money it’s much cheaper to do it through an intermediary than directly.
• Another thing that intermediaries bring is liquidity. This allows you to borrow a lot of money through them where you wouldn’t be able to do that through a non-financial entity.
• Lastly, financial intermediaries have the expertise to know the timing of profitable investments to help you get the best returns.
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