FINANCIAL INTERMEDIARIES

AGENDADEFINITIONTYPESADVANTAGESSUMMARY AND CONCLUSION

DEFINITIONFinancial intermediaries hold a very

important role in the flow of money in the financial world. The assistance of a financial intermediary is needed by companies who want somebody to act as a middle man in raising money from the investors. Meeting up between these two parties are often very difficult without the help of financial intermediaries.

EXAMPLE OF UNICON

TYPES OF FINANCIAL INTERMEDIARIES

INSURANCE COMPANYMUTUAL FUNDS COMPANIESNON BANKING FINANCE COMPANIESINVESTMENT BROKERSINVESTMENT BANKERSESCROW COMPANIESPENSION FUNDSCOLLECTIVE INVESTMENT SCHEME

INSURANCE COMPANIESInsurance companies concentrate on

fulfilling the insurance needs of the community , both for life and non life insurance. These companies offer products that allow investors to select the kind of policies to suit their financial planning needs.. These companies also offer policies for funding a child’s education and marriage, and providing a steady income for the aged through annuities and pensions

MUTUAL FUNDSMutual funds (MFs) organisations

satisfy the needs of individuals investors through pooling resources from a large number with similar investments goals and risks appetite. The resource collected are invested in the capital and money market securities. The returns are distributed to investors optimising the return for the investors.

HOW MUTUAL FUNDS WORK

NON BANKING FINANCE COMPANIES

NBFCs are commonly knows as finance companies and are corporate bodies, which concentrate mainly on lending activities in a well defined area.

INVESTMENT BROKERS The main duty of investment

brokers is to transact the security sales. There are discount brokers and full-service brokers. They provide an opportunity online for some individuals to promote their trades. Aside from that they can also solicit valuable investment advice to some clients who may need it that time.

INVESTMENT BANKERS The main duty of this financial intermediary is to increase monetary amounts of companies through stocks and bonds. Since conducting stock offerings and issuing bonds is so expensive, investment bankers focuses on how they can help the firm to earn more capital

ESCROW COMPANIES This is the type of financial intermediary that is built for the very purpose. These companies acts like an unconcerned party that will hold instructions for execution as well as the grounds agreed for it.

PENSION FUNDA pension fund is any plan, fund, or

scheme which provides retirement income.

Pension funds are important to shareholders of listed and private companies. They are especially important to the stock market where large institutional investors dominate.

CLASSIFICATION OF PENSION FUNDTHERE ARE TWO TYPES OF PENSION FUND

OPEN VS. CLOSED PENSION FUNDS

PUBLIC VS. PRIVATE PENSION FUND

Open vs. closed pension funds

Open pension funds support at least one pension plan with no restriction on membership while closed pension funds support only pension plans that are limited to certain employees

CLOSE PENSION FUNDSClosed pension funds are further subclassified into:

Single employer pension fundsMulti-employer pension fundsRelated member pension funds

Individual pension funds

Public vs. private pension fundsA public pension fund is one that is regulated

under public sector law while a private pension fund is regulated under private sector law. In certain countries the distinction between public or government pension funds and private pension funds may be difficult to assess. In others, the distinction is made sharply in law, with very specific requirements for administration and investment. For example, local governmental bodies in the United States are subject to laws passed by the states in which those localities exist, and these laws include provisions such as defining classes of permitted investments and a minimum municipal obligation.

COLLECTIVE INVESTMENT SCHEMEA collective investment scheme is a way

of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group. These advantages include an ability to

hire a professional investment manager, which theoretically offers the prospects of better returns and/or risk management

benefit from economies of scale - cost sharing among others

diversify more than would be feasible for most individual investors which, theoretically, reduces risk

ADVANTAGES OF FINANCIAL INTERMEDIARIESThere are 2 essential advantages

from using financial intermediaries:Cost advantage over direct

lending/borrowingMarket failure protection the

conflicting needs of lenders and borrowers are reconciled, preventing

 market failure

SUMMARY AND CONCLUSIONFinancial institutions (intermediaries) perform the vital role of

bringing together those economic agents with surplus funds who want to lend, with those with a shortage of funds who want to borrow.

In doing this they offer the major benefits of maturity and risk transformation. It is possible for this to be done by direct contact between the ultimate borrowers, but there are major cost disadvantages of direct finance.

Indeed, one explanation of the existence of specialist financial intermediaries is that they have a related (cost) advantage in offering financial services, which not only enables them to make profit, but also raises the overall efficiency of the economy. The other main explanation draws on the analysis of informat finance

THANK YOU

RANJITHA J