According to the Andrew Winton (2002), stated that the financial intermediaries are the firms that borrow fund from the saver, depositors or customer to lend the fund to those companies require resources for investment. Financial intermediaries are important part in the economic. Constant flow of money in economic are maintain by the financial intermediaries. According to the Bert Scholtens and Dick van Wensveen (2003), they stated that in the 1960s, Raymond Goldsmith(1969) prove that the national wealth are growth slower than the country's financial system due to the principal factor of the separation function and investing in the different economic units. Financial intermediation brings in economic development an active impact since 1990s. In the empirical research and theoretical disclosure that develop financial intermediation is conducive to the overall economy. Effect on the saving rate, on the social marginal productive of investment may influence by the financial intermediation. According to the Bert Scholtens and Dick van Wensveen (2003), they stated that pagano (1993) prove that the saving and growth rate of the households in the credit market will be decline due to ameliorate in risk-sharing. Financial development would boost economic growth. According to the Bert Scholtens and Dick van Wensveen (2003), they stated that enhance the distributed the financial funds and improved the standard of the investment of savings in the economic system is the significant benefit in the financial intermediation. Moreover, borrowing and lending money are become uncomplicated through financial intermediaries.
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According to the Falko Fecht, Kevin X.D. Huang and Antoine Martin (2007), stated that Jappelli and Pagano (1994) show that limitation of the financial market may improve the saving rate and thereby growth by limiting househoulds' able to smooth the entire life-cycle.According to the Sam Mensah, Ph.D(1997), stated that financial market is a market which is financial assets such as bonds can be buying or sell to other party. For example, a party buys financial assets (bonds or shares) which that previous hold by others party through transfer fund to the financial market. Financial intermediaries are connected by the financial markets.
According to the Gary Gorton and Andrew Winton(2002) stated that saving-investment process in the process of capitalist economy is focus on the financial intermediation and making it a central body. Financial intermediation generally is the root institution in the savings-investment process. According to the Stanley Fischer (2003), stated that financial intermediaries cut down the search and transaction costs for depositors and savers and assists decreased the matter between the entrepreneurs and investor about the dissymmetry information to carrying out the function in the financial system which to mediation between borrower and lenders, assisting investors providing the information they need or acquired, provided the information of the risk and the profit or return of the investment. For a significant extent, the development of sophisticated derivative instruments assists advance the risk allocated in the economy and also enhance the efficiency of the saving-investment process Financial intermediation improved the productivity of investment effectively through the given level of saving. Apparent, the efficiency of the financial system and the growth rate are interact each other which is more effective of the financial system, more prompt of the growth rate in the economic.
According to the Ingrid (2008), stated that financial instruments can qualify as acceptance to pay money in the future in interchange for present funds. They are created to fulfill the demands of financial system participants and consequence of financial innovation in the borrowing and financial intermediation processes, presence a wide range of financial instruments. Financial instruments can be divided into primary securities and indirect securities. Primary securities issued by the ultimate borrowers and the indirect securities are issued by the financial intermediaries. Financial instruments can be characterized as marketable and non-marketable. In addition, non-marketable cannot traded in the secondary market, on the contrary marketable can be traded. The examples of marketable of primary securities are traded bills, commercial paper; while the non-marketable are hire purchases, personal loan. The example of marketable of indirect securities is negotiable certificates of deposit which is issue by the bank; while the non-marketable are bank note, saving account.
Figure above representative the financial intermediaries and market and, flow of funds, primary securities and indirect securities.
According to the Frederic Malherbe (2010), stated that securitization included sale of loan such as credit card, mortgage. The process of the securitization consists trenching and pooling owing to the asymmetry information, research and transaction costs cause the individually loan lack of liquidity. According to the Joel Telpner (2003), stated that securitization is financing tool in the financial system. Merge, create and reorganize as a new form of assets and securities are involved in the securitization. Financing for the sellers of the assets will provide by the securitization.
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According to the Sam Mensah, Ph.D(1997) stated that asset-backed securities are the new financial instruments. Asset-backed securities are the securities such as bond. When paid back the principal thus will pay periodic interest until maturity. The pooled of asset generally is the asset which lack of liquidity, incapable to be sell individually. Loan have been pooled is the income of the asset-backed securities .An asset-backed security is divided into mortgage securities and non-mortgage securities. Mortgage securities represent an ownership interest in mortgage loans made by financial institutions such as commercial banks to funding the borrower's purchase of a home. Mortgage securities are formation when the loan such as are pooled by issuers for sale to investors. Non-mortgage consist new assets which are commercial paper, loans and leases, small business loan.