What Are the Economic Functions Financial Intermediaries Perform?

1. What are the economic functions financial intermediaries perform?

Financial intermediaries provide two important advantages to savers. First, intermediaries provide many loans, so the few that fall short do not impact as much as a the loss faced by an individual with few loans. They provide a platform to incur less risk to each individual. Another reason financial intermediaries reduce risk is that by making many loans, they learn how to better predict which of the people who want to borrow money will be able to repay. Someone who does not specialize in this lending may be a poor judge of which loans are worth making and which are not, though even a specialist will make some mistakes. A second advantage of using a financial intermediary is they have the ability to convert assets into liquid (useable) money. Although the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors.

Financial intermediaries help large numbers of people to use financial markets with a minimal amount of risk involved. Although these intermediaries are important in the macroeconomic functioning of the economy, they are usually stable and change only slowly.

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

Futures brokers have different licensing requirements and training than stockbrokers. A futures broker must have a Series 3 license, while a stockbroker is required to have a Series 7 license. Some brokers are dually licensed, so they can broker both kinds of financial instruments. The principles for selecting any broker are the same: know what your trading goals are, and look for the right fit.

Before you can make a trade in the futures or options on futures markets, you must open an account through a licensed Series 3 commodity brokerage representative.

It is generally believed that the broker serves only as an intermediary in securities trading, with commissions as his return. In fact, however, for this commission, the broker has to be responsible to their clients for accuracy, starting from opening the trading account until completing clearing and settlement. In order to receive their commission, a broker is responsible for carrying out and executing securities trading efficiently, delivering the securities payment to the seller and passing the scrip to the buyer on time, and providing the securities depository services and ensuring that the client's securities trading account is always correct.

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

In the process of trading in the market, if any mistake occurs, the broker has to be responsible and make sure that the buyers get their securities and the sellers get their money accordingly and within the time limit. As for any mistake or loss that might happen, the broker has to accept the loss and complete any necessary legal transactions to protect the client's benefits.

If a mistake or loss occurs because of the broker's violation of laws or his failure to comply with the regulations and member's codes of conduct, the broker will be punished. Punishment may include probation, fine, trading suspension, and membership dismissal, according to how serious the mistake is.

Investing online gives the investor a sense of control over their wealth. Buying and selling of a stock no longer requires another individual (third party intermediary). It saves the investor the added worries that come with the risk of utilizing a broker and the potential mistakes they can make. It can be done whenever and wherever by the investor themselves, online. Most brokers live on commissions, hence the tactics used by them are in the favor of the broker first, the brokerage house next and finally the client. Online brokerages pay financial advisors a fixed salary, thus eliminating the chance for an investor doing unnecessary trades for the benefit of the brokerage firm and the broker

How are AMEX and NASDAQ similar, if at all?

The American Stock Exchange and the NASDAQ are both examples of financial market trade organizations. These two entities are vehicles that provide an avenue or marketplace for surplus economic units and deficit economic units to participate in financial trading.

The American Stock Exchange is a marketplace for an array of financial products such as stocks, options, exchange traded funds, and structured products (amex.com, 2006). These products are traded through interactions of offers to sell and public bids to buy. All AMEX security trading is facilitated by a specialist who is stationed on the trading floor. These specialists must perform duties as facilitators, auctioneers, dealers, agents, and brokers’ brokers in