1.3 Financial Intermediation

Question 1

Crowdfunding definition

Answer 1

The practice of funding a project with monetary contributions from a large number of people

Question 2

What are the three actors that crowdfunding is based on?

Answer 2

• The project initiator (proposes idea)
• Individuals or groups who support the idea
• A moderation organisation that brings the parties together to launch the idea

Question 3

Financial intermediation definition

Answer 3

The bringing together of people who need to save and people who need to borrow

Question 4

Financial intermediary definition

Answer 4

An institution that facilitates the channeling of funds between lenders and borrowers.

Question 5

What happens with savers and spenders’ money in financial intermediation?

Answer 5

Savers (lenders) give funds to an intermediary, and that institution gives those funds to spenders (borrowers)

Question 6

What are the three sectors that individuals and businesses are classified under according to their financial position?

Answer 6

• Surplus sector (positive financial position)
• Deficit sector (negative financial position)
• Balanced sector

Question 7

What is someone who uses a financial intermediary known as?

Answer 7

An end-customer or counterparty

Question 8

What do counter-parties do?

Answer 8

Deposit and borrow money

Question 9

What are the main counterparts in the financial sector categorised as?

Answer 9

• Personal sector
• Retail sector
• Commercial and corporate sectors
• Public sector
• Financial sector

Question 10

What does the personal sector include?

Answer 10

Individuals who save small amounts of money in a variety of accounts.

Question 11

What are the needs of individuals in the personal sector?

Answer 11

• Invest over the long term in pension
• Borrow to finance house purchase
• Borrow for general consumption

Question 12

What does the retail sector include?

Answer 12

The personal sector, with the addition of small and medium-sized businesses

Question 13

What do the commercial and corporate sectors include?

Answer 13

Larger businesses and companies who deposit larger amounts of money

Question 14

What are the needs of businesses in the commercial and corporate sectors?

Answer 14

• Loans
• Insuring assets
• Foreign exchange for importing and exporting

Question 15

What does the public sector include?

Answer 15

The government and other public sector bodies

Question 16

What does the financial sector include?

Answer 16

Financial institutions

Question 17

How do banks make profit through financial intermediation?

Answer 17

By the interest-rate spread between the lower rate that it pays for the deposits made by the person with a surplus and the higher rate that it charges on the loan it makes to the person with a deficit