Master of Economics and Business Bissenova R.A.
Kyzylorda State
University Korkyt Ata, Kazakhstan
Financial intermediation and
financial intermediaries
All economic units (entities operating in the economy) can be assigned
to one of the following groups: 1) households; 2) firms; 3) state.
In each period, the budget of any economic unit can be in one of three
states:
1) the state budget balance, characterized by equality of incomes and
planned expenditures; 2) The state budget surplus when revenues exceed planned
expenditures; 3) State budget deficit when expenditures exceed revenues.
The financial system is carried out by means of the purchasing power of
the economic units from a budget surplus (creditors) to the economic units with
deficit budget (borrowers).
Financial intermediation - the direct purchase requirements with one set
of characteristics in economic units with a budget surplus and converting them
into proximity with the requirements of other parameters.
Financial intermediaries - organizations which direct their commitment
to economic units with surplus budgets and obtained by use of the funds to
purchase obligations for economic units with deficit budget.
The objective of financial intermediaries is to overcome difficulties in
the interaction between the lender and the borrower.
Positive aspects of financial intermediation
Firstly, because of its specialization financial intermediary carries
out transactions in such volumes that achieves economies of scale. In other
words, due to the large number of transactions and the use of a special office
equipment it can significantly reduce the amount of fixed costs per
transaction.
Second, financial intermediaries achieve savings on transaction costs
(costs associated with the search for the necessary information) to anyone who
wants to make a loan to the borrower directly by search for information is
usually more expensive.
Third, financial intermediaries may have important information about the
financial condition of the borrower. They establish reliable information easily
provided to the borrower, because they know a lot about the personality of the
recipient of the loan, the history of its business and recent transactions.
Due to above considered reasons, financial intermediaries often offer a
"financial product" at a lower price than individual market
participants. Otherwise, it is more profitable for individual market
participants to create their own "financial product» and present it at the
market of direct loans.
Therefore, financial intermediaries exist because
of the establishment of many «financial products" in
small quantities the value of transaction costs is too high. If these costs are relatively low, or if the
need for this "product" often occurs,
reducing them through economies of scale, the individual market participant will be able to deal with his own creation.
When you create a "financial product», mediators have four main
types of services.
1. Fragmentation of the loan amount.
Obligations issued by financial intermediaries may have different ratings -
from one to many millions of dollars. This is possible thanks to the fact that
the mediator integrates funds of many investors and invests them afterwards in
direct requirements of various denominations. This service is especially important
for small investors who do not have sufficient amounts for independent market
entry of direct loans.
2. Transfer of one
national currency to another. Many companies are exporting goods and services
to other countries, but not all are willing to finance foreign operations of
these companies by buying direct financial requirements, which are nominated in
foreign currency. Financial intermediaries help to fund the expansion of
worldwide corporations with the help of the purchase financial demands
exhibited in a national currency, sales and requirements nominated in other
currencies.
3. Establishment of
flexible system maturities. Financial intermediaries issue securities with a
broad range of maturities - from 1 day to 30 years.
4. Diversification of
nonpayment risk. Thanks to the fact that the assets of financial intermediaries
are formed from a variety requirements, they have an opportunity to distribute
the risk on own securities. If fluctuations in the prices of various components
of the portfolio less connected with each other, then the cost will be stable.
5. Portfolio
diversification is an impact on the opinion that the "do not put all your
eggs in one basket," where they can "to break" all
simultaneously. For example, if the portfolio is composed of various securities
and the issuer of one of them would be insolvency, the total portfolio yield
will suffer slightly. However, investors who have invested in this security all
of its funds will incur substantial losses.
6. Ensuring liquidity.
At the moment of receiving revenue
in most consumers rarely coincides with the emergence of the need for money. For this reason, the majority of economic
performers prefer to keep part of the assets, with low transaction
costs in convenient to transact into cash form.
Many of the "financial products" produced by the mediators are
liquid. For example, a checking account allows the consumer to acquire assets
or to pay the debt with minimal transaction costs.
Literature
1.
Искаков У.М. Рузиева Э.
Бохаев Д.Т. Финансовые рынки и посредники. Алматы - Экономика, 2005.
2.
«О товариществах с ограниченной и дополнительной ответственностью» Закон
РК от 22.04.1998г
3. «О Национальном банке
РК» Закон РК от 30.03.1995 г.