Publication 11. 2018
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Paul Samuelson
A Financial Intermediary?! Perhaps you have heard of it before, but do you understand what it really means? You might have an idea but then maybe you need some clarity as to which financial intermediary does what? I will try and break it down for you.
Think of a financial intermediary as a financial middleman in a business transaction. We know that a middleman is someone who arranges a deal between two sets of people. So, in other words, the middleman – and therefore the financial intermediary – acts as a link between people in order to bring about an agreement or business dealing.
There are many types of “middleman” in the financial industry. For example, a commercial bank. The bank is the most commonly understood middleman in the financial industry. This is because the bank arranges the money from those who have, a lender – through their savings – and give it to people who do not have, borrowers – through loans and mortgages. In the end, the bank acts as one of the ultimate intermediaries in the financial market.
There is one other critical financial intermediary that plays a significant role in the financial industry: The Securities Exchange. The Dutch Caribbean Securities Exchange or DCSX acts as the middleman between companies – that need funding, whether it is a start-up company on the verge of expansion or a mature company that wishes to explore new opportunities – and the investors who have monies and want to invest in these start-ups or mature companies. The Securities Exchange acts as the ultimate marketplace to connect these businesses and investors. The DCSX therefore, with the assistance of registered listing advisors and brokers, ensures that a company that issues a bond or stock to raise capital is connected with investors who wish to buy the bonds or stocks. The Exchange, therefore, doesn’t give loans nor do they take deposits or offer savings account. The Exchange only acts as a marketplace, an electronic location for interested parties to exchange ownership of stocks and bonds for money.
While there are similarities, I want to emphasize the main differences between the two main financial intermediaries:
For larger companies looking financing of very large projects, it may prove financially prudent, to seek funding not only through bank loans but also through the issue of bonds/stocks to augment the capital raised and minimize the cost of financing.
This editorial is presented to you by the DCSX with the collaboration of Vertex Investments.
Author of this publication: Stephanie Shaw CFA, MBA.