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Roles of Financial Institutions in Financial Intermediation

What roles do financial institutions play in financial intermediation? Why are these roles necessary? How should the company respond to the increased intermediation scrutiny due to the company IPO? What are common stocks? How do common stocks differ from preferred stocks? How is the value of a common stock calculated? Discuss the differences between using equity and debt to finance investment opportunities.

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Financial institutions often provide technical assistance to small businesses, training to prospective homeowners, and financial education to residents about the economy. It helps in international and cross border flow of capital and credit, gives opportunities to the business, government and other institutions to access to the international markets

Financial institutions play a fundamental role in liquidity redistribution and maturity transformation, the implementation of monetary policy, in operating payment systems and in providing appropriate channels for national and international financial flows, which contribute to the overall development of the economy.

Financial institutions can provide lending facilities and help businesses in crisis. They can also make major contributions to financial stability:

1. By continuing to make every effort to improve risk management

2. By transferring know-how and funds and strengthening corporate governance in the financial

They act as an intermediary between the lenders and borrowers. It arranges funds for the borrowers in any form whether it is equity, debt or hybrid instrument. It raises the finance for them for all kinds of duration whether it is short term or long term. Similarly it helps the lenders in allocating their money according to their objectives of risk and return. It helps in linking the lenders and borrowers of any par to the globe.

Importance
Thus the financial institution is helping in making the system more efficient. Thus strong and active financial institutions play an important role in creating economic opportunity. In addition to providing financial support, it offers a valuable perspective on global markets and business operations in support of development. It provides technical assistance to small businesses, training to prospective homeowners, and financial education to residents about the global economy. Financial institutions play a fundamental role in liquidity redistribution and maturity transformation, the implementation of monetary policy, in operating payment systems and in providing appropriate channels for national and international financial flows, which contribute to the overall development of the economy.

How should the company respond to the increased intermediation scrutiny due to the company IPO?
IPO is an Initial Public offer to an investor, which means it is the first issue of equities by the company to the general public at large. Among the most popular reasons a company might choose to go public are to: raise capital to expand its business, finance acquisitions, pay debt and have greater and easier access to capital in the future. Thus financing issue is how much to raise the funds from the equity offer. What should be the optimal capital structure in order to minimize the cost of capital.

Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter. In the United States, public companies report to the SEC.

Public companies must continuously file reports with the SEC and the exchange they list on. They must comply with certain state securities laws, NASD and exchange guidelines. If your company registers a class of securities under the Exchange Act, it must file ...

Solution Summary

This response discusses the roles of financial institutions in financial intermediation. It also discusses concepts such as scrutiny, common stocks, preferred stocks, equity, and debt.

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