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Explain how economies of scale enhance the ability of financial intermediaries to transfer funds from savers...

Explain how economies of scale enhance the ability of financial intermediaries to transfer funds from savers to borrowers. Provide an example or link to a relevant article to illustrate your ideas.

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Answer #1

ECONOMIC OF SCALE

Economic of scale occurs when the cost of units falls as output increases.Economic of scale are the cost advantage that a firm can exploit by expanding their scale of production and reduce the average cost of production.

IMPACT OF ECONOMIC OF SCALE ON FINANCIAL INTERMEDIARIES.

· Economic of scale helps in reduction of transaction cost a fee charged by bank,commission for broker,agent etc.

· Mutual funds gain more advantage due to the impact of economic of scale due to the lower commission.

· Economic of scale helps the bank to keep the transaction cost low.

· Economic of scale helps the financial institution in making huge transaction with corresponding less cost.

· Mainly,Economic of scale helps the financial intermediaries to reduce the cost of borrowing and lending money from the savers to borrowers.

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