Financial Intermediary - Advantages of Financial Intermediaries

Advantages of Financial Intermediaries

There are 2 essential advantages from using financial intermediaries:

  1. Cost advantage over direct lending/borrowing
  2. Market failure protection the conflicting needs of lenders and borrowers are reconciled, preventing market failure

The cost advantages of using financial intermediaries include:

  1. Reconciling conflicting preferences of lenders and borrowers
  2. Risk aversion intermediaries help spread out and decrease the risks
  3. Economies of scale using financial intermediaries reduces the costs of lending and borrowing
  4. Economies of scope intermediaries concentrate on the demands of the lenders and borrowers and are able to enhance their products and services (use same inputs to produce different outputs)

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