Contemporary Issues in Financial Services Essay - 1

Contemporary Issues in monetary Services - Essay ExampleFinancial intermediaries engender together borrowers and lenders in pecuniary markets by interacting with savers and borrowers simultaneously and by producing a set of services facilitating the slip of liabilities into assets like transforming deposits into loans. Though pecuniary markets arsehole likewise bring together lenders and borrowers channelizely, still the existence of pecuniary intermediaries is of utmost importance. This is because the direct lending approach between savers and borrowers has proved inefficient as this process buns be directly traced to the barter system where there is always a need for double analogy of wants. This function of transformation is termed as intermediation. Through this process, fiscal intermediaries facilitate savers and borrowers to have indirect lending and borrowing. Financial intermediaries can be banks, building societies, financial advisor or broker, insurance companie s, life insurance companies, common fund and pension fund. Firstly, national bank serves as a financial intermediary by pass judgment 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 accompaniment of wants. People with savings will want to lend the centre available with them for a particular age period. For this, one will have to find a person who needs ap proximately the same amount of fund for the same time period. Searching of such a person is a difficult task. Again, direct lending necessitates a negotiable contract. Transactions of repayments of principle and interest are required to account for. condition lenders will have limited ability to diversify and minimum exposure to default risk by lending small amounts to many borrowers but the transaction costs would be relatively higher. Here 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 everywhere 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 financi al transactions. Stockbrokers specialize in brokerage to perform such task. Types of financial intermediaries Fee found or advisory financial intermediaries These financial intermediaries charge a fee for rendering advisory financial services. Their services include i. Issue focusing ii. Underwriting iii. Portfolio management iv. Corporate counselling v. Stock broking vi. Credit syndication vii. Mergers and acquisitions viii. Debenture trusteeship ix. Capital restructuring Asset 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 earned by them from