Without the financial intermediaries borrowers and lenders would have to deal directly
. If you had $100,000 would you lend out $1000 to the first 100 people that showed up on your doorstep who promised to engage in the best forex trading. You absolutely would not.
As a lender you would need some means of evaluating the applicants who are asking for a loan. Likewise as a borrower would you just take the first $1000 offered to you as a loan. What if that person is a loan shark with ties to the Mafia. Even as a borrower you can incur some level of risk. That is why we have the financial intermediary.
A financial intermediary creates a market in which lenders and borrowers can secure financial instruments. There are several services that could intermediary offers when transforming direct financial claims into indirect ones. The first one is known as the denomination divisibility. Financial intermediaries are able to produce a wide range of denominations from one dollar to many millions. They can do this by pooling the funds of many individuals and invest them in direct securities of varying sizes. Of particular importance is their acceptance of deposits from individuals who typically do not have money balances large enough to ring gauge in the hotel transactions which is $1 million or more that can be found in direct financial markets.
There are many costs of doing business when it comes to the business of lending money. In the scenario mentioned above if you were to pull a credit report for each applicant this would be a cost that would have to be factored in to a loan. A financial intermediary may already have a credit record of the person who has a checking account with them. And the scenario a financial intermediary has an advantage over direct lender and can use that as forex trading tips. So a borrower has a choice when getting a loan he can either get it from his bank or from Vinny at the billiard hall.