Miss

WHY DO BANKS EXIST Introduction Banks stand between borrowers and lenders as fiscal intermediaries. They pool a large number of deposits and then go a relatively small number of loans, which are the swelled features of any modern economy. However, they also present us with a paradox. Why not the borrowers borrow directly from the lenders without the use of banks? The settle of this essay is to contribute to the understanding of the theoretical rule for the being of banks. Banks exist because they do have some comparative advantages others do not have. The traditional theory of the banking firm explains the theoretical rationale for the existence of banks in eight aspects. They are: 1? due date transformation 2?Liquidity insurance 3?Asymmetric information 4?Delegated monitoring 5?Control 6?Commitment theories 7?Regulatory subsidies 8?The peculiar(a) role of banks in the payment system In the following paragraphs, the dominion approaches are developed in more detail. 1. Maturity transformation in that location are various problems in financial transactions. The first whizz is how the borrowers and lenders match their liquidity needs. Borrowers need funds at a particular point of time for a given geological period at their acceptable lowest cost.

A lot of get by companies is used for investments such as buying large(p) equipments which have a relatively foresightful life. Companies need long term loans so that they have enough time for the equipments to fall enough funds to repay the loans. Potential lenders would like to slander the risk that the borrower is unable to repay, and if the term of a loan is as well as long, they also face the risk that the value of the asset may fall and that will reduce the wealth of them. Therefore, more likely, lenders pick to make relatively short-term lending. Borrowers and lenders have quite contrastive liquidity preference which will prevent contracts from taking place. Banks keep down this problem. They stand between borrowers... If you want to get a abounding essay, order it on our website: Ordercustompaper.com

Ordercustompaper.com is a professional essay writing service at which you can buy essays on any topics and disciplines! All custom essays are written by professional writers!