Are financial intermediaries essential for an economy to flourish?

Answer 1

um, ya dude.

no banks means everyone would have to individually figure out how to lend their savings out.

since that would be prohibitively expensive, you'd be unable to borrow to buy a car.


oh.

Answer 2

Financial Intermediaries are really crucial for the economy to develop because of the following reasons.

Maturity Transformation:
It means if you ask someone to lend you money for long period then they will not take such risk but financial intermediaries do that by borrowing money from people for short period and then lending it to other people for long time.

Aggregation:
People usually hesitate to lend large amount of money because of the risk of non repayment but financial intermediaries borrow small sums from a number of people and lend massive amounts to other people .

Risk Transformation:
As Financial intermediaries borrow money from people and lend it to others, in this way there can be a huge risk which can insolvent the company if everyone asks their money back at the same time.But this is highly unlikely and intermediaries take this risk and lend money to others.


These are the points which individuals and many businesses take advantage of in order to expand their businesses and which eventually cause the economy to grow.

Hope this helps

Answer 3

No - a country needs to have a skilled workforce, enough jobs to go round and material resources in demand from other countries to flourish.

Financial intermediaries as I understand them, advise people on pensions, insurance, savings etc, and have very little to do with a country's economy. Their services are becoming more obselete now that people can compare these sorts of products on the internet, however, they are useful because they can identify people's financial needs and products that might be useful in ensuring individuals' financial security