What can financial institution do for surplus economic unit, Financial Management

What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a deficit economic unit (DEU)?

Surplus economic units do not generally have the expertise to define if a deficit economic units can and will make good on their obligations, thus it is difficult for them to predict while a would-be deficit economic unit will be unsuccessful to pay what it owes.  Such type of a failure is likely to be devastating to a surplus economic unit which has lent a proportionately large amount of money.  On the contrary, a financial institution is in a better position to expect who will pay and who won't.  It is also in a better position, comprising greater financial resources, to occasionally absorb a loss while someone fails to pay. (This is just one instance of the beneficial things financial institutions do for SEUs).

Posted Date: 5/7/2013 1:10:13 AM | Location : United States

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