Financial Services Industry

Financial Services Industry - consumer financial products...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Financial Services Industry 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Intermediary Role of FIs When corporations raise capital, they sell securities. In the absence of FIs, households (net savers) could hold cash or invest in securities of corporations (net borrowers). This simple exchange is impractical for households given the time, knowledge, and resources required. 2 Corporations (net borrowers) Households (net savers) Cash Equity & Debt Claims
Background image of page 2
Role of FIs 3 FIs channel surplus funds from households to corporations. Cash Households Corporations FI (Brokers) FI (Asset  Transformers) Deposits/Insurance  Policies Cash
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Functions of FIs 4 FIs bring households and corporations together by functioning as either Brokers and/or Asset Transformers: Brokers – Act as middlemen bringing information, products, and services to clients with expertise and lower costs. Asset Transformers – Transform financial risk by financing corporate claims and repackaging them into
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: consumer financial products (e.g. checking accounts, savings accounts, CDs). In either case, no new money is createdthe money is already in the system and moved from one party to the other. A Foundation of Trust 5 However, banks are permitted to loan about 90% of deposits. Money is created by banks out of nothing through the process of extending credit. At any point in time, only 10% of deposits are available for withdrawal. The entire system is built on (the perception of) trust. Why Households Need Middlemen Information Role and Costs Consumers do not have the time, money, expertise, relationships, or access to complete information to invest in primary securities. Liquidity and Price Risk Secondary securities are generally more liquid and less risky. 6 See Appendix...
View Full Document

Page1 / 6

Financial Services Industry - consumer financial products...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online