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Management of Financial Institutions Questions

1.Identify two financial intermediaries. What are their respective functions? What are their major roles in the economy?

2.What are the money markets and what are the capital markets? How do they differ? What are their respective activities?

3.If an asset is called a derivative, what does that mean? Explain your answer and use examples.
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1. Financial Intermediaries are companies that connect surplus and deficit agents. In other words, financial intermediaries are institutions that serve as channels between those who need money and those who have extra money to invest. Some common financial intermediaries are banks, credit unions, insurance companies and pension funds. Let us look at the banks and the pension funds.

Banks (example: Citibank) are financial intermediaries that receives deposits and transfer the money into lending activities, either directly by loaning (aka retail banking) or indirectly through capital markets (aka investment banking). The economy roles of banks include issuing money (e.g. bank notes and cheques), credit intermediation (i.e. act as a middle man between lenders and borrowers to facilitate the investment) and settling payments (e.g. collecting dues on behalf of lenders and paying bills on behalf of borrowers).

Pension Funds (example: Canada Pension Plan Investment Board) are any plans, ...

Solution Summary

The expert identifies two financial intermediaries. The respective functions are provided.