Financial intermediaries

Financial intermediaries perform a number of key economic functions to a variety of groups, such as casual investors and to the financial markets. There are different types of financial intermediaries who are involved in different aspects of business. There are intermediaries who deal with banking, providing loans to borrowers, and who provide investment banking advice and opportunities, such as brokers. According to the Dictionary of Finance and Banking, a broker is “An agent who brings two parties together, enabling them to enter into a contract to which the broker is not a principal” (1997, p. 42).

This function brings together any two groups of people involved in the business process and usually revolves around a financial transaction from one group to the other based on risk and opportunity. The role of broker in the financial market is to act as a middleman between the investor and the company offering the investment opportunity. A broker brings together and facilitates a transaction whereby an investor is able to purchase an investment opportunity in the company offering a return to the investor on the original investment.

The broker takes a commission based on the value of the transaction or as part of a percentage of the profit made on the transaction that they advised on. The role of broker has changed dramatically since the inception of on-line investing technologies, and has now moved into the area of providing knowledge and information, instead of being on the front line of buying and selling investments. It is now possible for investors to use the technology available to make their own investments directly, and merely use the broker to act as a source of reliable information.

After the onset of this technological development “Brokers are used because they have specialized knowledge of certain markets or to conceal the identity of a principal, in addition to introducing buyers to sellers” (1997, p. 42). References (1997). A Dictionary of Finance and Banking (B. Butler, D. Butler, & A. Isaacs, Ed. ) (2nd ed. ). Oxford: Oxford University Press. Retrieved June 4, 2010, from Questia database: http://www. questiaschool. com/PM. qst? a=o&d=76802256