Services that financial intermediaries provide:
The needs of lenders and borrowers rarely match. These differences in requirements between lenders and borrowers mean that there is an important role for financial intermediaries if the financial markets are to operate efficiently.
1. Re-packaging services
Gathering small amounts of savings from a large number of individuals and re- packaging them into larger bundles for lending to business.
2 Risk reduction
Placing small sums from numerous individuals in large, well-diversified investment portfolios, such as unit trust.
3 Liquidity transformation
Bringing together short-term saves and long-term borrowers (e.g. building societies and banks). Borrowing short and lending long is only acceptable where relatively few savers will want to withdraw funds any given time.
4 Cost reduction
Minimizing transaction costs providing convenient and relatively inexpensive services for linking small savers to larger borrowers.
5 Financial advice
Giving advisory and other services to both lender and borrower.
6 Funds transmission (provide payment/settlement mechanisms)