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Discussing Financial Institutions and Financial Intermediation

Please discuss all of the following as one complete response:

What role(s) do financial institutions play in financial intermediation, why are these roles necessary, and how does the company need to respond to the increased intermediation scrutiny due to the company IPO? Explain financial intermediation and the role of financial institutions.

You should exhibit knowledge of what is meant by the term 'financial intermediation' and why it is an important and necessary role.

Solution Preview

Financial institutions play an important role in facilitating economic growth in any country. Well developed financial systems allow economies to reach their potential since they allow firms which have successfully identified profitable opportunities to exploit these opportunities as intermediaries by channeling investment funds from those in the economy who are willing to defer their consumption plans into the future (See Michael Tiel, Finance and Economic Growth: A Review of Theory and the available Evidence, ECFIN Economic Papers, July 2001, for a good overview).

Financial institutions such as banks play an important role in terms of liquidity redistribution and maturity transformation, the implementation of monetary policy, in operating payment systems and in providing appropriate channels for national and ...

Solution Summary

In about 475 words, this response interprets the term 'financial intermediation' and relates it to financial institutions, such as banks, explaining why it is a relevant concept. References are also included.