Answer to Question #259241 in Economics for Deema

Question

11) What is the role of the financial intermediation in economic development?

Answer 1

Financial intermediaries play an important role in the functioning of the money market, and through it - in the development of a market economy.

Financial intermediaries provide direct links between the main subjects of financial relations, helping them in the formation and effective use of funds. The main financial intermediaries include commercial and savings banks, credit unions, investment funds, and companies, pension funds, insurance companies, stock exchanges. Being between lenders and borrowers, financial intermediaries, if necessary, pool the funds of several lenders to meet the significant needs of borrowers, and also assume potential risks (liquidity risk, credit risk, interest rate risk), receiving a commission for services.