What Roles Do Financial Institutions Play in Financial Intermediation?
In Africa, "semi-formal institutions have emerged that both mobilize and lend funds to the general public". (World Bank, 1997) "A study of both informal and formal financial markets in Ghana, Malawi, Nigeria and Tanzania, Financial Market Fragmentation and Reform in Sub-Saharan Africa, shows that informal institutions use specialized methods to serve broad segments of the population that lack access to banks. Although they have responded positively in a liberalized environment, fragmentation into isolated market segments persists." (World Bank, 1997) These informal institutions are raising funds and leading the money to its members, after a 6 month wait period. It is assisting these developing countries in their development.
It is important for companies to use financial intermediation, especially when a company first offers stock to the general public for the first time. (also know as IPO or initial public offering) (Gallagher and Andrew, 2003, pg 445) The investment bankers handle all the details associated with pricing the stock and marketing it to the public. (Gallagher and Andrew, 2003, pg 445)
The current state of the way IPO's work is geared towards large institutions. "The Wall Street system benefits large institutional investors who have relationships with every major underwriter." There are many websites that offer current data to the public such as MSN money, Yahoo Finance, IPOhome and IPOfinancial.
References:
Gallagher, Timothy J, and Andrew, Joseph D., 2003, "Financial Management Principles and Practice", by Pearson Education Inc, Upper Saddle River, New Jersey.
World Bank, January, 1997, "Informal Financial Markets and Financial Intermediation in Four African Countries" [Electronic Version] retrieved on November 21, 2005 from http://www.worldbank.org/afr/findings/english/find79.htm
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- The current state of the way IPO's work is geared towards large institutions.
- It is important for companies to use financial intermediation, especially when a company first offers stock to the general public for the first time.
- In time, investors may sell the securities to other investors.