Financial Intermediaries

Among other things, financial intermediaries facilitate the exchange of funds between and among entities by (a) allowing economic transactions to occur in the absence of physical meeting of entities or their representative and (b) allowing economic transactions to occur without the exchange of physical assets. In the absence of financial intermediaries, economic transactions between corporate users of funds and household savers of funds would require the actual transfer of assets. In turn, the actual transfer of assets would require the physical meeting of entities or their representatives (Saunders & Cornett, 2006).

Household savers would hold their financial assets in the form of cash, bullion, or some other recognized and accepted medium of exchange. If household savers wanted to invest in a corporation's equity stock, they would be required to deliver their asset to the corporation in exchange for an equity stock certificate. Such delivery could occur by (a) entrusting the physical asset to a third party for delivery to the corporation, (b) delivering the asset themselves to the corporation, or (c) delivering the asset to a representative of the corporation who called at the household for that purpose.

The payment of dividends by the corporation or the redemption of the equity stock certificate would occur through a reversal of the same cumbersome process described above. Needless to say, the level of economic intercourse between househ

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Category: Economics - F