Capital Formation & Financial Intermediaries

The Benefits of Financial Intermediaries in the Capital Formation Process

• Financial systems facilitate the transfer of savings from saving-surplus units to saving-deficit units to promote capital formation.
• Financial institutions serve as intermediaries between savers and investors, making the transfer of resources easier.
• The transferring process is essential to promote growth in the economy due to geographical and technological restrictions that hinder the investment process.
• Financial intermediaries provide more convenient vehicles for the mobilization of savings, particularly from small savers.
• Indirect securities offer the benefits of divisibility and the ability to modify the maturity of securities to meet the needs of different savers.
• Indirect securities also have lower risk due to the advantages of diversification that even small investors can enjoy.
• Financial intermediaries provide trained, experienced, and specialized management, along with ongoing supervision, to both large and small investors.
• Professional managers of financial intermediaries can perform better due to their specialized knowledge and resources.
• Financial intermediaries provide economies of scale in borrowing and lending, allowing for cheaper transfer of money from ultimate lenders to ultimate borrowers.
• Financial intermediaries effectively put small investors in the same position as large institutional investors in terms of expert management.
• Financial intermediaries are crucial to the process of capital formation because saving is largely dispersed among a large number of people who lack the knowledge, capacity, and personal traits necessary for active investing.
• Investing is typically restricted to a specific class of businessmen who possess the necessary technical and market information.

The Benefits of Financial Intermediaries in the Capital Formation Process

• Financial systems facilitate the transfer of savings from saving-surplus units to saving-deficit units to promote capital formation.
• Financial institutions serve as intermediaries between savers and investors, making the transfer of resources easier.
• The transferring process is essential to promote growth in the economy due to geographical and technological restrictions that hinder the investment process.
• Financial intermediaries provide more convenient vehicles for the mobilization of savings, particularly from small savers.
• Indirect securities offer the benefits of divisibility and the ability to modify the maturity of securities to meet the needs of different savers.
• Indirect securities also have lower risk due to the advantages of diversification that even small investors can enjoy.
• Financial intermediaries provide trained, experienced, and specialized management, along with ongoing supervision, to both large and small investors.
• Professional managers of financial intermediaries can perform better due to their specialized knowledge and resources.
• Financial intermediaries provide economies of scale in borrowing and lending, allowing for cheaper transfer of money from ultimate lenders to ultimate borrowers.
• Financial intermediaries effectively put small investors in the same position as large institutional investors in terms of expert management.
• Financial intermediaries are crucial to the process of capital formation because saving is largely dispersed among a large number of people who lack the knowledge, capacity, and personal traits necessary for active investing.
• Investing is typically restricted to a specific class of businessmen who possess the necessary technical and market information.