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What are the economic functions financial intermediaries perform?

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1. What are the economic functions financial intermediaries perform?
2. What is the role of broker in the financial market?
3. How has that role changed since the inception of on-line investing?

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Please see response attached for best formating and active links (also below), including one supporting article. I hope this helps and take care.

RESPONSE:

1. What are the economic functions financial intermediaries perform?

Let's look closer at the types and the functions below:

TYPES AND ROLES OF FINANCIAL "INTERMEDIARIES"

Note: intermediary broadly interpreted as services provider, not just balance sheet
- Money/credit multiplier: payments system, liquidity, credit risk II (uncollateralised lending)

1. Banks
- Credit risk I (collateralized lending)

2. Mortgage banks, credit/finance companies
- Pooling actuarial risks

3. Insurance companies, pension funds
- Economies of scale, diversification

4. Investment funds / mutual funds
- Liquidity

5. Dealers, market makers
- Search costs

6. Brokers
- Information costs

7. Credit rating agencies, newspapers
- Exchange costs

8. Clearing / settlement institutions
(Financial markets, payments system)

FUNCTIONS AND DEFINITIONS - FINANCIAL INTERMEDIARIES (FI)

A. Balance sheet intermediation

- Buying financial assets / extending loans (assets) and selling financial assets / issuing deposits, securities (liabilities)

More general,

B. Financial services provider

-Providing financial services for a fee not only "banks" but also credit rating agency accountant's newspapers, magazines etc.

-Economic analysis / functional approach requires the broad perspective on services

Role (function) of FI: (Saunders/Cornett (2003) Chapter 1)

FI role or functions:

1. Brokerage
2. Asset transformation

5 Economic Outcomes of the FI

1. Lowering information costs (specialization, monitoring, screening)
2. Increased liquidity (diversification)
3. Price risk management (diversification)
4. Reduced transaction costs (scale economies)
5. Maturity transformation (due to better risk management, hedging)

Added: transmission m-policy, credit allocation, intergenerational transfer, payment services, and denomination intermediation (SEE ATTACHED ARTICLE).

2. What is the role of broker in the financial market?

A broker is a Financial Intermediary. There are many kinds of Brokers (i.e., Mortgage brokers; Online brokers; Real estate brokers; Stock brokers, health Insurance brokers, etc.). Basically, though, a broker is an agent (i.e., individual or organization) whose role is to handle the public's orders to buy and sell securities, commodities or other property. A commission is charged for this service. www.4insurance.com/annuity/glossary.asp

Definitions: The role of the Broker (some are highlighted in yellow) in the financial market:

In commerce, a broker is a party that mediates between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Distinguish agent: one who acts on behalf of a principal. (en.wikipedia.org/wiki/Broker)
A securities firm or an investment advisor associated with a firm. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities him or herself, but acts as an agent for the buyer and seller and charges a commission for these services.
www.globeinvestor.com/resources/glossary/glossaryb.html

An intermediary who negotiates contracts of insurance/reinsurance between an insured and insurer/reinsured and reinsurer on behalf of the insured/reinsured. The broker places insurance/reinsurance on behalf of the insured/reinsured with markets of the broker's choice or as designated by the insured/reinsured.
www.genre.com/page/0,1019,ref%253DReinsurance_Terms-en,00.html
Registered individuals who sell securities to the public.
www.lasallebank.com/investments/glossary.html

An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders. Also, person who acts as an intermediary between a buyer and seller, usually charging a commission. A "broker" who specializes in stocks, bonds, commodities, or options acts as an agent and must be registered with the exchange where the securities are traded. Antithesis of dealer.
www.sectorspdrs.com/aboutspdrs/index.cfm

(1) An insurance salesperson agent who sells insurance products for more than one insurance company. (2) For a career agent, to submit insurance applications to companies other than the agent's own company.
www.life-line.org/glossaryb.html

A licensed person or organization paid by you to look for insurance on your behalf.
www.msagroup.com/underterms/

Person who acts as an intermediary between a buyer and a seller, usually charging a commission.
www.angelfire.com/wizard/club/glossary.html

An agent who executes buy and sell orders for securities or commodities for a fee.
www.guardfamily.org/B06/B0601/A0001_D/glossary/bhs04_glossary.html

An agent who handles the public's orders to buy and sell securities, commodities or other property. A commission is charged for this service.
www.4insurance.com/annuity/glossary.asp

A person licensed to act as an agent for another in negotiating the sale, purchase, of real property in return for a fee or commission.
www.askjoni.com/glossaryofterms.htm

A state licensed sales agent who acts for property owners and prospective purchasers in Real Estate transactions.
www.halstead.com/resources_glossary.aspx

Brings buyers and sellers together for a ...

Solution Summary

This solution explains the economic functions that financial intermediaries perform, as well as the role of broker in the financial market and how that role has changed since the inception of on-line investing. Supplemented with an informative article on financial systems.

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The economic functions financial intermediaries perform

After submitting your report, one of the new brokers asks the three questions below and requests a written response:

1. What are the economic functions financial intermediaries perform?

2. What is the role of broker in the financial market?

3. How has that role changed since the inception of on-line investing?

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