Study On Finance Intermediation And Intermediaries Finance Essay - Free Essay Example

Sample details Pages: 5 Words: 1473 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? A major part of any financial institutions activity was to make loans to ultimate borrowers out of funds which were made available to them from the ultimate lenders. In fact this is what financial intermediation means ,the process of indirect finance using financial intermediaries. In other words, intermediaries create assets for lenders and liabilities for borrowers which are more attractive to each than would be the case if the parties had to deal with each other directly. Such institutions with an intermediation role are banks, investment companies, credit unions and insurance companies. By collecting surplus funds from lenders (also called savers) and allocate them to those with a deficit of funds (borrowers), financial intermediaries increase the efficiency of the economy by promoting a better allocation of resources. Another role of financial intermediaries is to bridge the gap between borrowers and lenders and reconcile their often incompatible needs and objectives by performing a transformation function: Financial intermediaries collect small-size deposits made by savers and repackage them into larger size loans. They perform this size-transformation function by exploiting economies of scale because they have access to a larger number of depositors than any other individual borrower does. Financial intermediaries are said to be borrowing short and lending long which means that they transform short-term funds into loans which are made available to borrowers for longer terms. In this maturity transformation process they are said to be mismatching their assets and liabilities. Financial intermediaries are able to minimise the risk of borrowers that are not being able to repay the amount of money they owe to the savers by diversifying their investments, pooling risks, screening and monitoring borrowers and holding capital and reserves as a buffer for unexpected losses. This function is known as risk transformation. Anot her crucial function is to transform primary securities into secondary securities that are more attractive to lenders. In this way, secondary securities will be less risky and more liquid than primary securities because banks benefit from economies of scale. This allows them to offer lower loan rates relative to direct financing. Arguably, savers and borrowers do not need financial intermediaries; borrowers can obtain funds directly from the lenders through direct finance in financial markets. However, there are two types of barriers that can be identified in direct finance: it is more difficult and expensive to match the needs of borrowers and lenders and, in most of the cases, these needs are incompatible Financial Markets Direct financing Savers/ Depositors Borrowers Indirect financing Financial Intermediaries The benefits of indirect financing through financial intermediaries can be summarised as followed: 1. Through indirect finance it is generally achieved greater liquidity and there is a greater likelihood that loans will be available when required. 2. Financial intermediaries are able to reduce risk through a number of devices. Firstly, they can be confident that while some depositors will withdraw their deposits, others will be making new ones. This is known as The law of large numbers and it is one of the benefits of the financial intermediaries. Secondly, not all assets behave in the same way at the same time, therefore, holding enough different assets (there is less than perfect correlation between movements in asset returns) . 3. Financial intermediaries reduce the transaction costs because of their ability to pool funds and trade in large blocks of securities where the dealing commission is very small in proportion to the value. Also, financial intermediaries recruit high quality staff to perform the process of finding suitable deficit agents. b) To begin with, an asset is broadly defined as a ny possession that has value in an exchange. Assets can be classified into two main categories: real assets and financial assets. Real assets are goods that provide a flow or services over a period of time(examples are buildings, machinery, land). In contrast to real assets are financial assets, such as stocks, bonds or bank deposits. They are classified as intangible assets because they do not contribute directly to the production process; they are claims to the income generated by real assets. For financial assets the typical future benefit is a claim to future cash. Their performance depends on the performance of the underlying real assets. While real assets contribute to the net income in an economy, the role of financial assets is to allocate income or wealth among various investors. Financial assets can be classified into three broad types of securities: equity, debt or derivative securities. When an investor buys ownership shares(equity) in a company he actually invest s money in it. The firm uses the money so raised to buy real assets which will in turn generate income which will be distributed to the owner of the shares in the form of dividends, proportional to the investment. Debt securities, on the other hand, promise the investor a fixed stream of income regardless of the financial condition of the issuer. Finally, derivative securities, such as options and futures contracts, derive their value from the prices of other assets(bonds or stocks). They are very useful to businesses because they are among the cheapest and most readily available means at companies disposal to buffer themselves against shocks in currency values, commodity prices and interest rates . c) The three concepts that will be approached in this section- risk, return and diversification- are closely linked. They represent the key issues of an investor when choosing how to allocate his surplus funds, or in other words what assets to hold. The answer will be that he wi ll choose the assets that give him the rate of return required, given the risk that they involve. Assuming that investors are risk averse income maximisers they will look for assets that involve minimum risk for a given level of return. A key measure of success is the rate of return on an asset, or to put in another way, the rate at which an investors funds have grown over a given period of time. The total holding period return(HPR) of a share of stocks will consist of any income(dividend) that the asset earns plus any capital gain(or loss). The reward from an investment is its expected return(also known as mean value) which is actually the average HPR an investor would earn if repeating its investment in the asset. Any investment involves some degree of uncertainty about future holding period returns and this is where risk derives from. Some of the sources of risk come from macroeconomic fluctuations, changing fortunes of various industries, asset-specific unexpected develop ment. Risk can be defined as the probability that the actual return on an asset may differ from the expected return. By looking at this definition it is only reasonable to suggest that risk can be measured by examining the degree of variation in the return over a period of time. Therefore, it is sensible to say that an asset with a wide dispersion of actual returns around the mean is riskier than one which returns have been tightly clustered around the mean. In technical terms, the asset with a lower variance is less risky than the one with a high variance. However, some investors are willing to invest their money in risky assets if there is a high reward that will compensate for the risk involved. This reward is called the risk premium and it is the difference between the expected HPR on the stock and the risk- free rate(for example the rate of Treasury bills). On the other hand, there are some investors who are risk averse and they are less willing to hold a risky asset. It is obvious to say that people are risk averse if the risk premium on an asset is zero. Risk averse investors require a higher risk premium in order to invest their funds in the risky assets; the risk premium will be greater the greater their risk aversion. One way of reducing the degree of risk to which investors are exposed is diversification, one of the many benefits offered by intermediaries. Diversification implies that as more securities are added to the portofolio, so the portofolios variance diminishes. However, there is no way to avoid all risk even if a large number of risky securities are bought. This is because ultimately all securities are affected by common macroeconomic factors. The risk that remains even after diversification is the market risk, while the one that can be eliminated by diversification is the firm-specific risk. A risk averse investor will do everything possible to diversify away the firm-specific risk since the market-risk will always remain. Moreover, diversification is of no benefit when the correlation coefficient is +1(there is a positive linear association between stocks). As a result, provided that the returns on assets are less than perfectly correlated, the more diversified is a portofolio the lower will be the risk associated with a given return. Don’t waste time! Our writers will create an original "Study On Finance Intermediation And Intermediaries Finance Essay" essay for you Create order

Strengthen the Separation between Church and State Essay

Strengthen the Separation between Church and State First Amendment issues of the separation of church and state and state establishment of religion have long been litigated in the federal courts. Until recently, the Supreme Court had a consistent track record of preventing the intermingling of religion and government, especially when it came to the nations public schools. Yet this past year, a newly activist conservative court has set about rewriting some of the Warren Courts judicial legacy. In the 1995 case of Rosenberger v. University of Virginia, the Supreme Court, in a 5-4 ruling, declared that the University of Virginia was constitutionally required to subsidize a student religious magazine on the same basis as secular†¦show more content†¦The majority opinion was justified on First Amendment free speech grounds, arguing that state funding, if provided for secular organizations, must also be available for an overtly religious publication. Yet this line of argument implies that government refusal to subsidize religious writings is somehow stifling the free speech of the writers involved. In other words, the court ruled that it is legally impossible for the state to remain neutral in the realm of religion. Neutrality, according to the Supreme Court, constitutes a latent form of suppression. Justice Sandra Day OConnor, a court moderate who cast the deciding vote, justified her anguished decision in a deeply troubled concurring opinion. In it, she echoed the concurring opinion of fellow moderate Justice Anthony Kennedy, emphasizing that the state funding was indirect, coming directly from student activity fees, and that the newspapers would be printed on printers not owned by the school. OConnor also stressed that this specific case lay in a gray area between protected free speech and prohibition of religious funding by government, and warned court observers not to interpret this case in a broader context. 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Why Universities Punish Plagiarism

Question: Discuss about the Report for "Why Universities Punish Plagiarism". Answer: Plagiarism is one area which is a matter of concern for all universities across the globe as well as the various industries and companies. First and foremost it is very important to understand what is plagiarism before understanding the reasons for punishing those who do the same. An act of copying or claiming someone elses work, song, any sort of a write up or even an idea as ones own is defined as plagiarism. Information can be taken from various mediums such as internet, journals, articles, books or any such media which provides data to the users. Thus it is very important to acknowledge the person or the medium from where the data is being singled out. This is known as internal citation and failure to do the same also connotes as plagiarism. Thus plagiarism in simple words is cheating hence the same should be avoided to the highest level so as to avoid any ethical issues (Carroll, Zetterling, 2009). The best way to avoid the same is by adapting ethical practices from the beginni ng of the academic career of a person. By avoiding plagiarism one can also develop vocabulary and such other academic skills which would ensue that the work is done in the manner possible best suited for the student. Thus the universities tend to punish the students who resort to plagiarism in their work due to varying reasons. Firstly, just like stealing things from anybodys house or office or any other such place is termed as theft and a punishable crime similarly plagiarism is also termed as a theft which should be resorted to adequate punishment to the plagiarist. Cheating is an unsolicited act of not abiding by the rules. However cheating is also classified into varying levels depending upon the kind of immorality it poses. However the concept of cheating in universities works in a different manner. Many times plagiarism does not cause any harm to the person from whom the data is stolen as it doesnt affect his capability to give ideas. But there are times it leads to material effect on the person whose work is being stolen. For example if a patent is stolen of an inventor then he has to pay a huge amount for the said loss. Further it affects the person whose work is plagiarized when his ideas which were original and written with careful deliberations are stolen and presented to the same professor by two or three other students. By the time the originators paper catches the eye of the teacher, its impact is reduced to such a level that he may even end up getting poor grades thus affecting his academic performance card (Batane, 2010). Thirdly universities punish students who copy others work as it leads to devaluation of the degree that they provide of those who are the actual deservers of the same. If one student succeeds by defrauding then it encourages other students as well due to which many end up resorting to cheating. This leads to applauding and convocation of students who do not deserve the degree, thus diminishing the value of the same for those who are worthy of the said degree. Though it seem to be a very meagre reason for punishing students for cheating but on viewing the fact that it weakens the feeling of trust which is of utmost importance in this world of globalization the same seems to be worthy enough a reason. Another very important reason why the universities should resort to punishing the students for plagiarism is that it hampers the name of the university. It is considered to be highly unethical on the part of the professors as well as the university as a whole to ignore the plagiarized work as it may lead to giving degrees to those who dont deserve. For example in the field of medicine if plagiarism is ignored then the university may end up giving degrees to those who are not worthy of becoming a doctor or a scientist (Gorges, 2009). Thus because of the same the university may end up giving degrees to students who actually have no knowledge about medicine which may affect the patients or the research firms in future. The kind of punishment that the universities spell out in case of plagiarism is varying depending upon the harm it causes to the student itself, other students, and teachers as well the university as a whole. They may even end up failing the student for the same and many a times the originator may become victim of the said situation. Thus to avoid the same, punishment should be given only after proper check is conducted so that the intellect is not punished and rewarded with good grades (Rebecca, 2010). The universities nowadays even conduct classes to make the students aware of the consequences that they may have to face for such plagiarism from warning to being expelled from the university thus disrupting their carer forever. Therefore on summarizing the said issue of plagiarism it is clear that universities punish the students and even teachers and professors in some instances due to many factors. Some of the important factors are reputational factors, quality of students, furtherance to the same the effect and danger that it poses to the field in which the student has gained the degree but not through its own hard work but through cheating and lastly it breaks the trust and affects the mind of the deserving candidate pessimistically. He concludes that all his efforts are all in vain due to the universitys lack of investigation and differentiation between good and bad students. Thus keeping in mind all the above reasons the universities have adhered to punishing students who resort to plagiarism and ensuring ethics is maintained at its highest level. References: Batane, T., (2010), Turning to Turnitin to Fight Plagiarism among University Students, Educational Technology and Society, vol. 13, no. 2, pp. 1-12 Carroll, J., Zetterling, C.M., (2009), Guiding Students away from plagiarism, KTH Learing Lab and the authors Layout: AMGD, Available at : https://people.kth.se/~ambe/KTH/Guidingstudents.pdf (Accessed 29th August 2016) Gorges, B., (2009), Why Punish Plagiarists ?, Available at : https://teleogistic.net/2009/11/11/why-punish-plagiarists/ (Accessed 29th August 20160 Rebecca, A., (2010), Plagiarism tariff: let the punishment fit the demerit points, TLS Education Ltd, Available at: https://www.timeshighereducation.co.uk/story.asp?sectioncode=26storycode=412088c=1 (Accessed 29th August 2016)