ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers).

Detailed explanation-2: -Banks as Financial Intermediaries Banks act as financial intermediaries because they stand between savers and borrowers. Savers place deposits with banks, and then receive interest payments and withdraw money. Borrowers receive loans from banks and repay the loans with interest.

Detailed explanation-3: -Thus, banks act as financial intermediaries-they bring savers and borrowers together. An intermediary is one who stands between two other parties. Banks are a financial intermediary-that is, an institution that operates between a saver who deposits money in a bank and a borrower who receives a loan from that bank.

Detailed explanation-4: -Through a financial intermediary, savers can pool their funds, enabling them to make large investments, which in turn benefits the entity in which they are investing. At the same time, financial intermediaries pool risk by spreading funds across a diverse range of investments and loans.

Detailed explanation-5: -Financial intermediaries provide a middle ground between two parties in any financial transaction. A prime example would be a bank, which serves many different roles: it acts as a middleman between a borrower and a lender, and pools together funds for investment.