Appendix
Appendix
Appendix
251
FINANCIAL INTERMEDIATION
Savings Investment
Brokers
Household Businesses
(Investors with (corporations)
different risk Banks
preferences and
needs)
Financial
markets
Savings are transformed into investment in an economy via financial intermediaries (such as
brokers and banks) and stock exchanges. The main role of financial inter-mediation is the
reduction of the cost and facilitation of the matching process of borrowers and lenders needs,
in term of amounts and time, and risk preferences.
Financial intermediaries conduct a special type of analysis to run their business and satisfy
their customer needs. This analysis encompasses market prediction, portfolio management,
risk management, and financial product development.
Appendix 2.1 Financial Intermediaries …………………………………………..………. 252
Bank
STOCK EXCHANGE
WARRANTS
GILTS
A CLEARING SYSTEM
A clearing system helps financial intermediaries in the clearing and settlement of trades. The
following figure depicts a typical flow of a transaction issued by a client and executed by a
financial intermediary (broker) after clearing and settlement.
Client
Private investor Client instructs broker to
or fund manager Shares purchase/sell shares
credited
to client
Shares credited to broker
Clearing house Broker