Financial intermediaries issue (indirect) debt of their own to buy the
(primary) debt of others. Their issues attract funds from alternative
expenditures by non financial spending units on consumption, tangible
investment, or primary debt and this in the long rung will promote economic growth because of provision of capital through loans.
They intermediate between the sources of funds that flow to them and the ultimate users of these funds.
How they link saving and investment: they borrow from consumer/savers and lend to companies that need resources for investment. Thus saving at the same time leading to investment.
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Aug 21st, 2015
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