Certified Management Accountant Practice Exam 2026 – The Comprehensive All-in-One Guide to Exam Success!

Financial intermediaries are entities that facilitate the flow of funds between savers and borrowers, effectively playing a critical role in the financial system. The classification primarily includes institutions such as banks and insurance companies.

Banks accept deposits from individuals and businesses, which they then use to provide loans to others, thus offering a key mechanism for the movement of money and credit throughout the economy. Insurance companies also serve as financial intermediaries by collecting premiums from policyholders and investing those funds in various assets, which helps to spread risk and provide returns.

The distinction lies in the functions these firms perform—transforming savings into investment opportunities, managing risk, and providing liquidity, all of which are hallmark characteristics of financial intermediaries. Notably, other types of firms, such as retail companies, manufacturers, government agencies, and educational institutions, do not primarily engage in these intermediary activities; instead, they may focus on production, service provision, or education without the specific role of facilitating financial transactions between third parties.