A financial intermediary is defined as an institution that serves as the middleman between two or more parties in order to aid any financial transactions. The common institutions that are involved include; investments banks, commercial banks, stock exchanges, pooled investments funds and stockbrokers. Financial intermediaries transfers the uninterested capital to the various productive initiatives through various stockholding structures, debt and equity. Through the process of financial intermediation, the liabilities and assets undergo various changes to different assets and liabilities. The process tend to channel money from those people who have savers to those who need funds in order to carry out their various activities. In other words, a financial intermediary is known as the institution that enables the channelling funds among the financiers and those who borrowers indirectly(Baranova, Coen, Noss, & Lowe, 2017). The savers give money to intermediary institution for instance bank, then the institution lenders those funds to the borrowers. When the borrowers receives the funds they are inform of mortgages or loans. The funds might be given either directly through the financial market that tries to eliminate the financial intermediary which is referred to us as disintermediation. In the context of development and financial climate context, the paper aimed at discussing financial various roles of financial intermediaries, its own mechanism of a financial system, the role of the financial canter, various types of the finance the functions of the financial intermediaries, the issues of financial system and finally recent Brexit or the financial crisis in relation to financial intermediaries(Schneider, 2017).
Mechanism of financial system;
Financial system is the various methods through which money is made available such as share issue, savings, and bank loans and sales revenue. It operates at global, national, specific companies levels(Schneider, 2017). They comprises of complex services which is early related like institutions ted to provide efficient ad regular bond among the depositors and investors. In financial system money, finances and credit are used as medium of exchange. They are considered as of value for which various goods and services can be converted to an alternative to other bartering. In the modern financial system consists the following; financial markets, banks, financial services and financial instruments(Leroy & Pop, 2018). The system aloe funds to be invested, moved among the economic sector and to be allocated. It plays a vital role to an individuals and firms to share the associated risks.
Component of the financial system.
i) Banks
Banks are financial intermediaries which give out funds to the borrowers in order to generate revenue. Banks provide market stability and ensure the protection of the consumers that is why banks are heavily regulated. Banks are classified into; Commercial bank, Cooperative banks, Central bank, Public banks, State managed cooperative banks and State managed land development banks(Lagoarde-Segot, 2017).
ii) Non-bank financial institutions.
They are institutions that are made to facilitate financial services like market brokering, risk pooling, and investments. They neither have full baking licenses, nor supervised by the bank regulation, they include; Mutual funds, Commodity trade, Insurance Company, Finance and Loan Company(Rousseau & Wachtel, 2017b).
iii) Financial loan markets
They are markets in which the commodities, securities and even fungible goods are traded at the value to represent the supply and demand.
iv) Financial instruments.
They are the tradable financial assets of any nature. The financial instruments includes; contracts, evidence of ownership and money. There are different types of financial instruments they include; first, Cash instruments; they are value that determine directly by the markets. They includes deposits loans and securities(Maggiori, 2017). Secondly, Derivative instruments; this is a contract that derives its value from single or more assets, interest rate as even index.
v) Financial services.
Financial services are services which offered by a huge business that involve the finance firms. They are as follows; banks, credit cards and credit unions.
Roles of the financial canter.
Financial canter provides loans. Through financial intermediaries people get financial aid to carry out their own business activities. For instance, it facilitate self –employment programme where it provides finances for those people who want to engage in their self-employment programs which generates more production and income to an individual. The financial intermediaries has helped those people who are socially and economically depressed. It provides loans to them so that to help them in carrying out various economic activities. This method is aimed at improving both rural and urban conditions(Bazot, 2017). In housing finance as a way of improving dwelling houses the financial intermediaries provides housing loans by providing finances to various agencies.
Asset storage. Through financial canter people, companies and other interested groups can be able to store for cash as well as other assets majorly for future use. For example institutions like banks are ideal for storing of assets since they offer protection ad might not be found in other places(Rousseau & Wachtel, 2017a). They provide cheaper way of accessing the assets providing checks credit card deposit slips ad checks. To ensure that the assets are o the save side the financial center provides the access of the records of the withdrawals, payment which are very essential in enabling the businesses of the various companies and individuals with the keeping records for future references.
Financial canter provides a good platform for investments. Through brokerages investment banks and the mutual funds are example of financial canter that aimed at assisting the people and companies to increase their assets through investments(Martiskainen & Kivimaa, 2017). It uses the experience and available resources to assist the clients in reducing any risk at the same time to maximise the returns of good percentage. Along with investments and trading, financial intermediaries provides financial advice to their clients and investments. They do this all times ad more especially through online means.
Financial intermediaries also takes various considerations. Depending on the economic climatic changes. The financial center can pass strict rules and the requirement more especially on the procedure of lending funds and investing(Hancock & Dewatripont, 2017). Therefore, one has to do a detailed research on financial institution like banks, investment companies and credit unions in order to comprehend the rights and responsibilities. This research is very vital in determining whether financial intermediaries have the capabilities to meet the client‘s requirements. The information gathered is very essential since it reduces the possibilities for the fees which is not expected or in taking unnecessary risks in investments.
Types of finance.
There are three type of finance. They are as follows; Personal finance, Public finance Cooperative finance.
a) Personal finance
Personal finance is the way of handling money, making financial decisions, earning, spending, investing and even saving by the household or an individual. Personal finance may involve paying for the durable goods, paying for education and even buying insurance. Personal planning involve six major areas of financial planning. They include
i) Financial position.
It deals with a ways on how to comprehend the individual resources that are available by examining the net worth and the cash flow of the household. The net worth entails the individual’s balance sheet which is calculated by adding the assets which the person owns, subtract the liabilities of an individual.
ii) Adequate protection.
It is the analysis on to safeguard the household from risks. The risks can be categorised as follows disability, health care, death, property and liability. These risks may be insured by an individual, while others may need purchase of the insurance contract(Rey, 2017). For one to determine how much insurance to get the most appropriate terms which requires acquaintance of them market for individual insurance majority of the people like businessmen , professionals individual insurance in order to protect themselves.
iii) Tax planning
The income tax is known to be the single largest expenses in the household. Regulating taxes is not an issue but the issue becomes when paying the taxes becomes an issue. The state lenders a lot of incentives in form of credits and tax reductions, which is essential in the reduction of lifetime tax burden.
iv) Investment and accumulation goals.
In planning how an individual acquire enough money for the purposes of the large purchases and the evets of life. Is what the majority of the people prefer to financial planning? The primary reason to accumulate assets involves starting business, purchasing cars or house saving for the retirements and eve paying for education. The achievements may need the cost of eachasset. When an individual wants to borrow fund in order cater for this goals.
v) Retirement planning;
Is the process of comprehending how much an individual need to live at retirement, so that to come up with a plan to divide asset in order to achieve any income shortfall. There are various methods on how to take advantage of the state allowed the structures to control tax liability including personal structures, the life insurance products and employer retired plans.
vi) Estate planning.
It includes planning for the nature of an individual’s assets after death. There is an existence of the tax due to the government after the individual ‘death. To overcome these taxes implies that a person’s assets will be shared the immediate family members.
b) Cooperate finance.
It is a type of finance that majorly concerns with various sources of funding and the capital structure of the cooperation. The steps the administrators take to upsurge the value of the companies to those people who have shares in the firm, and the main tools that is used to distribute financial sources(Schackmann-Fallis & Scheffler, 2017). Generally cooperate fiancé involves various ways on how to balance the risks, the increase of the profitability of the firm and try to maximise the entity’s assets. To regulate the net incoming cash flow and the worthiness of the stock. It entails three major sections of the capital resource distribution which include; first, capital budgeting the administration should identify the type of the project to carry out. Secondly, is the source of capital this may relate to where the resources are founded from, where the sources of the various investment the dividend policy that requires the administration to determine if there is unappropriated profit (extra) to be kept for the future investment. Cooperate finance includes the scope business progress the investing management and eve the stock investing.
c) Public finance
Public finance tries to describe finances related to the sovereign government, municipalities, sub-national entities, provides, counties and any other public related entities. Most of the time it encompasses long- term plans involving the investment choices that affect any public institution. It is mainly concerned with the source of the revenue, the process of budgeting, the identification of the appropriate expenditure of public institutions and the debt assurance.
Functions of the financial intermediaries.
Financial intermediaries plays various functions to people. Its functions includes; first, it offers services that are very helpful to an individual or company to borrow or save money. Hence facilitates the requirement of different needs of the borrower and the lender. Secondly, through creditors the financial intermediaries provides good platform for rendering a line credit to qualified customers and collecting the premiums of various debt instruments for instance, education, small businesses financing homes and any other personal needs(Rey, 2017). On the same note financial intermediaries helps I converting short term liabilities to long term assets; this means that it deals with more clients who are lenders and the borrowers thus trying to reconcile their differences. Thirdly, financial intermediaries play a major function in converting risky investment by lending to borrowers. This reduces the risk that might occur to the clients. Fourth, financial intermediary’s tries to march small deposit with huge loans hence, make it convenience denominations.
Issues in financial system
There are various issues that financial system face. They include; first, not making enough money. Despite the profitability that are on the headlines, various financial institutions are not making enough funds that are equated to what they invest. Secondly. Consumer expectations. Majority of the clients, currently informed and have various experiences. Many institutions of late experiences pressure because they dot meet the quality services that the clients demand more especially in the area of technology (Martiskainen & Kivimaa, 2017). Thirdly, there is an increment of competition more especially from the upcoming technology firms. Many technology companies have come up with various software which provides financial services hence creating a challenge to tradition financial institutions since they are unable to move with the technology. Finally, there is regulatory pressure. The demand are becoming very difficult to adhere which forces the financial institutions to spend most of its budget in or order to meet the demands.
According to recent reports from Karel Lanao, he tries to put forward that the financial services is about 8 percent of the country’s GDP. This explains why United Kingdom attaches the immense importance to hold access to the European union. In the process of making the rule in a good condition it will take a good number of years and will permit less admission the united kingdom licensed companies enjoy today.
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