Intro to FinanceIP

An efficient financial system promotes intermediaries that successfully link savers ' from borrowers (Mankiw . There are two widely-known financial intermediaries namely the banks and mutual funds . Banks are highly accessible to the general public are generally more cost advantageous that direct lending . Generally , the banks main purpose in the economy is to take in deposits from savers and use these deposits to make loans to people who want to borrow (Mankiw , N . Gregory , 2001 Principles of Economics ,

. 557 . Banks incur costs by paying interest on these deposits and earn from these by

charging higher interest rates on loan borrowers . Second to this , banks play an important role in the economy as they facilitate the purchases of goods and services by allowing people to write checks against their deposits (Mankiw , N Gregory , 2001 , Principles of Economics ,

. 557 . In this manner , the economy benefits from banks by this accessible medium of exchange Unlike stocks or bonds which are not as immediate , checks make it easier for the public to exercise their monetary transactions

Mutual funds , on the other hand , are institutions that use the proceeds of selling shares in buying portfolios of stocks and bonds where they derive their profits . The financial markets become more accessible and efficient because mutual funds allow people with small savings to become owners and creditors of numerous companies . Also , mutual funds allow its shareholders the benefit of risk diversification wherein a single fund can carry a roster of diverse portfolios in stocks and bonds

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