Q. Investors advantage from financial intermediation?
Investors advantage substantially from financial intermediation because:
(a) By investing in a market or bank investors are able to get access to diversified portfolios which might otherwise be difficult. Since their funds are pooled investors take advantage from the banks' abilities to aggregate funds and allocate them efficiently.
(b) Investors is able to access bank expertise in assessing corporate risk thus obtaining the best return for a particular level of risk.
(c) Investor risk is reduced for the reason that of the banks' diversifying activities. Subject to a required rate of return, Minimised risk, is passed onto investors in a competitive banking market.
(d) Legislation that offers for investor protection should a bank fail (in terms of either central bank support or investor guarantee schemes by other banks) further reduces the risk investors face.
(e) Investors are able to choose their exposure to a particular level of risk subject to depositing money in appropriate funds. For instance mutual funds offer a range of risk profiles from which the investor can choose.