Financial intermediary can be compared to a bridge which does not move people but money; it refers to that individual or financial institution which helps the financial system by transferring money from individuals who has surplus funds to those individuals who have shortage of funds. Given below are the examples of financial intermediaries –
- Banks – These institutions accept deposits from the public and give loans to those individuals or companies who require funds for their business or personal needs. They give interest to depositors and charge interest from borrowers and in majority of the cases rates of interest is on loans is higher than that of deposits.
- Insurance Companies – These institutions in return of premium from insured cover the various risks like death, health problems, risk of loss due to fire and so on of the person who has taken the insurance policy.
- Mutual Funds – These intermediaries collects the funds from small investors and pool it together so as to invest in equity markets, debt securities and other asset classes depending on the type of mutual fund. If these institutions make profit from their investments they return in back to investors in the form of dividend and capital appreciation to the investors.
- Investment banks and brokers – When an individual trades in financial markets like equity, commodity and currencies he or she needs to open an account with investment banks and brokers who have the necessary infrastructure and technology to carry out trading. These institutions charge brokerage from clients from providing these services.
Apart from above institutions like pension funds, credit unions and any person or company providing services which help in making financial transaction easier can be considered as financial intermediary.