1 World Of Finance
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...
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