The Role of The Money Market In Financial Intermediation

Reference code: P005

ABSTRACT

This research seminar paper is on The Role of the Money Market in Financial Intermediation. For the purpose of the paper, we examined the nature, classification of financial intermediation. We also examined the place of the money market in this process in addition and comparison to that of the capital market as financial intermediary. It is shown in the paper that in comparison to the capital market, the money market with special emphases on banks are the most important financial intermediation agents in the financial system. This is because the financial intermediation role of banks is more encompassing and inclusive than the capital markets whose role as a financial intermediary is a lot more the preserve of those segments of the society that more financially literate and elitist than the general populace. Secondly, banks perform some intermediation roles which they only are legally permitted to do. Finally, the paper shows that the problems associated with direct financing including: transaction costs, asymmetric information and counter party risk can only be comprehensively solved through the financial intermediation role of banks.

1 INTRODUCTION

2 REVIEW OF RELATED LITERATURE

2.1 Conceptual and Theoretical Framework

2.2 Functions of Money Market Financial Intermediaries 

Wealth Function

Liquidity Function

Credit Function

Payment Function

Risk Protection Function

Policy Function

2.4 Resolving the Problems of Direct Financing – The Role of Banks

3 SUMMARY AND CONCLUSION 

REFERENCE

Reference code: P005

22 Pages

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