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    Activity 3

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    Juliana Marie Cofino

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    © All Rights Reserved
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    Activity 3

    Uploaded by

    Juliana Marie Cofino
    6 views1 page

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    ACTIVITY 3

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    6 views1 page

    Activity 3

    Uploaded by

    Juliana Marie Cofino

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Cofino, Juliana Marie M.

    ACTIVITY 3:
    1. Define the financial institutions, financial intermediaries and asset management.
    = A Financial Institution (FI) is a company engaged in the business of dealing with financial and
    monetary transactions such as deposits, loans, investments, and currency exchange. While, the
    A financial intermediary is an entity that facilitates a financial transaction between two parties.
    Such an intermediary or a middleman could be a firm or an institution. It is also emerged as a
    useful tool for the efficient market system as they help channelize savings into investment.
    Lastly, the Asset management is the process of developing, operating, maintaining and selling
    assets in a cost-effective manner. Most commonly used in finance, the term is used in reference
    to the individuals or firms that manage assets on behalf of individuals or other entities.
    2. Enumerate the functions and advantages of financial intermediaries.
    = The functions of financial intermediaries are:

    •The biggest function of these intermediaries is to convert savings into investments.


    •Intermediaries like commercial banks provide storage facilities for cash and other liquid assets,
    like precious metals.
    •Giving short- and long-term loans is a primary function of the financial intermediaries. These
    intermediaries accept deposits from the entities with surplus cash and then loan them to entities
    in need of funds. Intermediaries give the loan at interest, part of which is given to the depositors,
    while the balance is retained as profits.
    •Another major function of these intermediaries is to assist clients to grow their money via
    investment. Intermediaries like mutual funds and investment banks use their experience to offer
    investment products to help their clients maximize returns and reduce risks.
    The advantages of financial intermediaries are:

    •They help in lowering the risk of an individual with surplus cash by spreading the risk via
    lending to several people. Also, they thoroughly screen the borrower, thus, lowering the default
    risk.

    •They help in saving time and cost. Since these intermediaries deal with a large number of
    customers, they enjoy economies of scale.

    •Since they offer a large number of services, it helps them customize services for clients. For
    instance, banks can customize the loans for small and long-term borrowers or as per their
    specific needs. Similarly, insurance companies customize plans for all age groups.

    •They accumulate and process information, thus lowering the problem of asymmetric
    information.

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