Question

2. Discuss the role that financial intermediaries play in the movement of funds in the three sector economy.

Answer 1

3 Sector economy consist of 3 parties ie households, financial intermediaries , business firms .

Financial intermediaries link between households and firms as they helps to channelizing the funds. As factors of production is provided by household to firms in return they get factor payments . The factor payments that is received by the households us not completely spend . They save some portion of it and deposit it into banks . Then banks provide interest to the households for their deposit and the fund that is received by the banks from households is given to the firm as a loan for the growth purpose of the business in return they charge interest from business against their lending . The interest rate they give to households is less than the rate they charge from firms in this way they make money.

answered by: anonymous