This lesson examines the role and operations of key financial institutions in the intermediation process, including commercial banks, investment banks, and other financial intermediaries .

7.1 Financial Intermediation
Financial intermediation involves channelling funds from savers to borrowers . Reasons for intermediation include: Transaction cost reduction, Risk transformation and diversification, Maturity transformation, and Information asymmetry reduction .

7.2 Commercial Banks
Commercial banks are deposit-taking institutions that perform the core intermediation function . They transform liquid liabilities into illiquid assets, creating a maturity mismatch that is a source of risk . Students learn to interpret bank financial statements and understand their core functions .

7.3 Institutional Investors
Major types of institutional investors include: Mutual funds, Pension funds, Hedge funds, Insurance companies, and Sovereign wealth funds . Each has distinct investment objectives, risk profiles, and regulatory frameworks . Students evaluate risk management by mutual funds and hedge funds .