Table of Contents 1. Abstract --------------------------------------------------------------------------------------Page 2 2. Needs of Financial Intermediaries in Financial Markets ------------------------------Page 3 3. Introduction ---------------------------------------------------------------------------------Page 3 4.

Financial Markets -------------------------------------------------------------------------Page 3 5. Importance of Financial Markets -------------------------------------------------------Page 4 6. Financial Intermediaries -----------------------------------------------------------------Page 6 7. Functions of Financial Intermediary ---------------------------------------------------Page 7 8. Why Need of a Financial Intermediary ------------------------------------------------Page 8 9. Conclusion ---------------------------------------------------------------------------------Page 10 10. Bibliography -------------------------------------------------------------------------------Page 11

Abstract Financial markets are formed in different countries in order to have freewill in executing the transaction based on financial instruments. A financial market as an important element in the financial system and its major component s an intermediary who is a neutral stance person between the buyer and the seller of the financial instrument and is an important element because comparatively on the major basis transactions ratio among the inclusion of the intermediary is greater than the non inclusion of the intermediary. An intermediary is not only the third person involved in the transaction of the financial commodity but also a person having the knowledge about the transaction commodity and the contracting parties among which the transaction and exchange is taking place.

Needs of Financial Intermediaries in Financial Markets Introduction 1. Financial Markets Financial Markets an important key element in the growth and stability of an economy also an important section of the financial chain as it assist in the flow of funds and also plays an important role as an exchange of financial instruments and commodities for individual, government and corporations. It is an intermediary between the buyer and seller of the financial instruments (shares, bonds and commodities) (Darskuviene, 2010). Financial market is the first component of the financial system where the buyers, sellers and intermediaries meet to satisfy their needs of financial instruments exchange. Financial markets are of different types depending upon the nature of financial exchange takes place within the boundaries of that specified financial market. (James & Brainard, 2012) . Markets like spot market, future market, money market, capital market, primary market, secondary market, Private and public markets (Allen & Gale, 2003). Each market has own distinctive characteristics and each market has their own intermediaries. Some markets like spot and future markets have a little difference among them that one is traded on the basis of on the spot delivery and future based on the future profit and losses assumptions (Adrian &Shin, 2008).

2. Importance of Financial Markets A financial market reflects multiple importances among different institutions as it mobilizes resources among organizations and government as it implies the multiple effect of currency revelation which appreciates its value. It gives a positive pull to the economy of any country (Darskuviene, 2010; James & Brainard, 2012). All of the mentioned below operations of a financial intermediaries are executed in the financial market Importance to the Lender

A financial market intermediary analyses the market and evaluate a comparatively better interest rate where he could lend his money in return of benefits in term of money i.e. returns on investment made. Importance to the borrower

Providing a better rate of interest for the loan to the borrower as compared to a bank offer rate for interest Importance to the buyer and seller

Financial intermediaries as a neutral person provide both the parties (i.e. the buyer and the seller of the financial commodities) a reasonably negotiation for the transaction which is in their benefits. Importance to Economy

A financial market plays an important role towards the appreciation of the economic condition by the following components a. Price discovery b. Liquidity c. Reduction of transaction cost

a. Price discovery When a financial instrument is traded among the buyer and the seller, in exchange of the financial instrument a certain cost is paid which determine the desirable cost of that certain commodity and in addition to the cost of the traded asset the desirable return determined by the seller or buyer is also determined. The motivational factor of the deficit unit depends upon the desirable return demanded by the investor. (Darskuviene, 2010) b. Liquidity Liquidity function relates to the opportunity to sell financial instrument in against the desirable market price for the investor and its possibility depends upon the availability of the liquidity. Without the availability of the liquidity the commodity or the financial assets cannot be sold and investor holds that particular financial commodity until it is matured and in financial market majority of the investor make investments on the basis of short term investments. Many commodities are matured after certain period of time (depending upon the nature) and stocks arent matured until the organization intentionally or unintentionally liquidated. (Darskuviene, 2010) c. Reduction of transaction Costs This function relates to the cost depending upon the nature of the asset, contracting party voluntarism and opportunity rose from that scenario under which the transaction is made (Darskuviene, 2010). The reduction of the transaction costs depends upon the following factors Asset specificity Uncertainty Frequency of occurrence Asset specificity means the nature of the transaction that how the transaction is organized and executed between the parties. Its level of specificity determines the significant cost application for its alternative use. Uncertainty also related to the nature of the transaction which contains two components internal forces which is directly implicated to the opportunism of the contracting
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parties and the external forces or components which related to the events occurred and cannot be controlled by any of the contracting parties (James & Brainard, 2012). The third component is the frequency of the transaction occurrence. It means that how a market transactions is frequently occurring in the market. If the occurrence is frequent then the transaction should take place in the firm rather in the market which will save the cost of transaction. If less frequent then the transaction should take place in the market. It all determines the cost reduction of the transaction. (Darskuviene, 2010) 3. Financial Intermediaries A financial intermediary is a bridge of communication and deliverance of benefits for the buyer and seller of a certain financial commodity in the financial market (Darskuviene, 2010). The concept of intermediary applies where there are difficulties in the direct engagements of a financial exchange between the buyer and seller, lender and borrower (Darskuviene, 2010; Allen & Gale, 2003). Intermediaries has always been considered as unnecessary individual because when a buyer and a seller, a borrower and a lender can directly exchange their needs then why need of a intermediary. (Allen & Gale, 2003) As a neutral stance a financial intermediary creates more feasibility of the conditions applied on the trade of financial instrument between the buyer and seller in the financial market as the direct dealing between the parties (Darskuviene, 2010; Adrian & Shin, 2008). A financial intermediary has an engagement between the investor OR the lender who lends funds to borrowers or investing the investors money in the desirable position with the risk involvement for gaining the returns. (Darskuviene, 2010) Depending upon the nature of the financial claim the financial intermediary become liable or participant equity holder to the investor he borrows money and an asset transformation to that person who a financial intermediary lends money. (Darskuviene, 2010)

4. Functions of Financial Intermediary As a representative of the neutral stance in the financial market a financial intermediary performs multiple functions as follows Transaction Facilitator Investment Portfolio Creation Liquidity Maintenance Risk management Management of asymmetric Information

Multiple functions of a financial intermediary concludes into the management of the risk the investor has invested in the purchase of commodity or financial instrument for the sake of desirable return, creating the investment portfolio and risk diversification as a backup for the
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negative stance of the market response and providing the complete information about the financial instrument which strengthens the base of transaction success among the buyer and seller in the financial market. Liquidate the funds in the financial market by making investments or purchasing of the financial commodities. (Darskuviene, 2010) 5. Why Need of a Financial Intermediary In a developed financial market an intermediary has no need as the technological and other aspects providing the helpful information to the borrower or the lender, investor, seller or the buyer, then why the need of financial intermediary still exists. (Darskuviene, 2010; Allen & Gale, 2003) Even banks and other financial institution as lenders lend their money to borrowers, the borrower dont know what to prefer ad what not to prefer. What, when, where why and how to gain a financial benefit in terms of investment or in the term of lending and thats why we need a financial intermediary as What to buy from the financial market. It means that what admires the most to the buyer, multiple financial instruments have different rate of returns and different amount of risk. (UNCTD, 2008) The first priority for an investor will be that what the investor wants to buy from the financial market. How much to buy, the instrument in which the investor is investing then he must know that how much to invest, depending upon the returns and the amount of the assessed risk implied and the ratio of risk and returns must be analyzed, when to buy means the right time for the investment to be made, the opportunity availability is an essential element for every investor or buyer. (UNCTD, 2008) Where to buy, the right place to buy the financial commodity, why to buy what is the future assessment of the purchasing of that specified commodity. Opportunity availability and its benefit, knowing the seller, and gaining the knowledge is the better way of making investment rather than investing as a speculator. (UNCTD, 2008) An investor always is dependent on the knowledge of the specific instrument he wants to purchase as an investment for future returns in against the risk assessed and the assessment of

risk and return on that risk is evaluated by the intermediary and this elaborates his existence in the financial markets. (UNCTD, 2008) There is numerous reasoning which results in obtaining the services of the financial intermediary as 1. A financial intermediary is a bridge of communication between the buyer and the seller as an intermediary is the negotiator of terms and conditions between the parties. 2. Deliverance of knowledge to eliminate asymmetric information which strengthens the base of transaction between the borrower and lender, buyer and seller, and investors. 3. Create portfolio of the investments for the investor minimizing the risk by diversification of funds (not in all financial instruments can be diversified) and also creation of certain scenario which results in healthy returns against the investments and risk. 4. Decision making depending upon the information and knowledge results a better investment consultation to the investor, borrower and buyer. 5. Giving a better hand to the economy by revelation of the money in the market results the multiplier effect of the monetary benefit to the government. 6. Cost efficiency as the investor or the borrower does not have to find the right person; this task will be done by the intermediaries. 7. Contains a large pool of money as gaining money from individual and providing attractive interest rates.

Conclusion Financial intermediaries are essential elements for the financial institutions in the financial market, they not only plays as a negotiator in the financial market but also an essential element in the revelation of the money supply in the open market which helps the government as a multiplier effect of the currency. As a neutral stance they create a certain scenario which helps in which the transaction between the buyer and the seller, lender and borrower, and investor, and also provide the knowledge which eliminates the asymmetric information. Contains the pool of resources and can lend a huge amount of money to the borrower. It all results that a financial intermediary is needed as a communication bridge between the parties and also an essential element for the government, corporation and individual.

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Bibliography Allen, F. & Gale, D. (2003), Financial Intermediaries and Market, the Wharton Financial Institutions Center

Adrian, T. & Shin, HS (2008), Financial Intermediaries, Financial Stability, and Monetary Policy, Federal Reserve Bank of New York Staff Reports

James Tobin, J& Brainard, WC (2012), Intermediaries and the Effectiveness of Monetary Controls, American Economic Association

Darskuviene, V. (2010), Financial Markets, Leonardo da Vinci program project

(UNCTD) United Nations Conference on Trade and Development, (2008), EVALUATING INVESTMENT PROMOTION AGENCIES, United Nations

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