7. Who are financial intermediaries? 9. Functions of financial intermediaries.

8. Role of financial intermediaries in modern economy.

Basic role of financial intermediaries is transforming financial assets that are less desirable for a large part of the public into other financial asset, which is preferred more by the public. This transformation involves at least four economical functions: providing maturity intermediation, risk reduction via diversifications, reducing the costs of contracting and information processing and providing a payment mechanism.

Without financial intermediation we must not have seen revolution in financial services in past couple of decades. Financial intermediation is responsible for creation of institutional investors in financial market. Modern world would not have been so modern without financial intermediaries. Financial intermediation has won savers confidence by protecting their asset while providing efficient services to help manage their asset.

If there were no intermediaries, individual savers would have to directly purchase the securities of borrowers. There would have been incompatibility of the maturity needs of lenders and borrowers since most savers want to lend funds at short maturity, while borrowers want to borrow at longer maturities. It would have been difficult to match small amounts of individual savings to the larger loan amounts desired by borrowers.

Financial intermediaries bears risk on behalf of investors by investigating their savings across various sectors of business. They transform risk-by-risk spreading and risk pooling; they can spread risk across a range of institution. In turn institutions can pool risk by spreading investment across firms and various projects.

10. 10. What do you know about modern market of stock brokerage services?

Brokerage firm, or simply brokerage, is a financial institution that facilitates the buying and selling of financial securities between a buyer and a seller. Brokerage firms serve a clientele of investors who trade public stocks and other securities, usually through the firm's agent stockbrokers. A long time ago, brokerage commissions were even fixed. But in 1975 fixed commission was canceled. Today there are two main types of determining payment for brokerage services: as a percentage of the amount of the deal and as the difference between the value of the transaction at a client price and the actually value of carried transaction. A traditional, or “full service”, brokerage firm usually undertakes more than simply carrying out a stock or bond trade. The staff of this type of brokerage firm is entrusted with the responsibility of researching the markets to provide appropriate recommendations and in so doing they direct the actions of pension fund managers and portfolio managers alike. The second type of brokerage firm is “discount broker”. It can be divided into two parts: premium discount broker (low commissions; limited research or investment advice) and basic discount brokers (main focus is executing trades electronically online; no research or investment advice; commissions are at deep-discount). Today distinctions between online brokers and brokers who provide full range of services to customers are blurred. It means that online brokers provide allmos all services provided by their offline colleague. While trading, investors manage the process with the help of a trading platform (specialized software), which is provided by the online broker. The broker gives investors access to market information, including different securities listing, and other key data via the trading platform. Based on this information, investors make their decisions. Each brokerage firm performs front office operations (all activities that involve client contact), back office operations (all activities that support the front office operations) and proprietary operations (cash and risk management activities and any speculative trading that the firm conducts for its own accounts). Advantages of Internet Trading:

• gives you the most complete control over your portfolio;

• you decide at what price and when (even in seconds) to buy or sell, as well as at any time to change your mind;

• you independently make all your investment decisions;

• you may trade on different markets;

• you receive information in real time;

• internet trading allows you access to the most effective trading tools and analysis;

saves your money

11.What do you know about modern market of insurance services?

Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. Insurance is the way for businesses and individuals to reduce the financial impact of a risk occurring.

Insurer - insurance company that accepts the risk. Insured- the person or company transferring the risk through a contractual agreement (insurance policy). The fee an insurer receives from a policyholder is called the insurance ‘premium’.

The insurer collects premiums on a number of policies and pools these funds, which it then invests to increase the amount of money held. Should any insured person or business make a claim on a policy, the insurer will pay out on that claim from the pool of funds.

Before deciding whether or not to provide insurance cover, the insurer will look at all the circumstances surrounding a risk, such as: the likelihood of it happening, the steps already taken to reduce the risk and the financial consequences. This whole process is called ‘underwriting’..

Due to the size and complexity of some risks, some insurers take out their own, additional insurance - as added protection for themselves. Reinsurance is an extension of the concept of insurance, in that it passes on part of the risk for which the original insurer is liable.

Reinsurance is important for four main reasons:

• To protect an insurer against very large claims

• To reduce exposure to peaks

Insurers want a balanced set of underwriting results each year, without peaks. And reinsurance covers them against unusually large losses.

• To obtain an international spread of risk

This is important when a country is vulnerable to natural disasters and an insurer is heavily committed in that country.

• To increase the capacity of the direct insurer

Sometimes, insurers want to insure a very large risk but are unable to do this on their own. By using reinsurance, the insurer can accept the whole risk and then reinsure the parts it cannot keep with other insurers.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. 

The main types of insurance services are: Auto insurance, Health, Accident, sickness, and unemployment insurance, Casualty, Life, Burial, Property, Liability (covers legal claims against the insured), Credit and others.

Insurance companies may be classified into two groups:

• Life insurance companies, which sell life insurance, annuities and pensions products.

• Non-life or property/casualty insurance companies, which sell other types of insurance.

Life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life business is long-term in nature. Non-life insurance usually covers a shorter period, such as one year.

Insurers have to receive a license or authorization from a state authorities. An insurance company must submit its rates and policy forms to the insurance regulator to receive approval.

Insurance companies (IC) are rated by various agencies. In the USA it is A. M. Best, in Ukraine we have Top-ratings of IC according to Forbes, ForInsurer and other magazines.. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

The largest insurance companies in Ukraine are «AXA Insurance», «Ingo Ukraine», «PZU Ukraine», «UNIQUA», «Ukrainian Insurance Group» ….

Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price.

The main trends in Insurance Industry, that are of most concern to insurers, are:

increased regulatory requirements, volatile economic and investment environment, the rise of importance of social media, increased role of advanced technology such as predictive modeling and big data, increasing number of extreme weather events and increased geopolitical instability around the world.