Question

Briefly discuss why it is necessary to have financial markets and financial intermediaries.

(Hint: base your answer on what we have discussed in class)

Answer 1

It is important to have financial markets and financial intermediaries. The financial markets is a place where buying and selling of stocks and bonds take place. The financial intermediaries acts like a conduit between the lenders/savers and borrowers/spenders . They can provide better lending terms to the borrowers according to their credit risk . They offer liquidity, low interest rates and risk free investments to the investors. They reduce the risk of default and capital loss for the lender as well.