Question

Discuss the size of the REITs in relation to other financial intermediaries.

Answer 1

Financial intermediaries are the individuals or the institutions which serve as a middleman in the financial transactions. They acts a channels the fund from the people who have surplus capital to those who needs capital in order to carry out desired activity. There are many type of intermediaries such as banks, stock exchanges, mutual funds, insurance companies, investment banks etc.

• The banks are one of the biggest financial intermediaries in the world. In US alone the banks have more then $18 tn in assets. The bank borrows money from the people in the form of term deposits and lends it to the people who needs the capital.
• The stock exchanges act as intermediaries between buyer and seller of the stocks and bonds. The corporations can raise capital by issuing the stocks, bonds and papers on these exchanges. The US has 3 most valuable stock exchanges in the world with NY stock exchange being the most valuable. NYSE is values at $30 tn.
• Mutual Funds are the funds which pools money from the people and invest in shares, bonds, corporate issues and other type of debt. The advantages of investing money through mutual funds are, among others, entrusting the savings to professional fund managers, asset diversification, lower costs than in case of direct investments and access to global financial instruments and markets.In the United States, there were 9,599 mutual funds in 2018, managing assets worth approximately 17.71 trillion U.S. dollars
• A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberland.
• The number of REITs are around 233 in US and their market capitalization is around $1 tn dollars. So REITs are still not a dominating force as compared to Banks and Mutual Funds.