Surplus economic unit deal with a deficit economic unit, Financial Management

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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)?

Excess economic units don't usually have the expertise to determine whether deficit economic units can and will make good on their obligations, so it is hard for them to predict when a would-be deficit economic unit will fail to pay what it owes.  Such a failure is probable to be devastating to an excess economic unit that has lent a proportionately large amount of money.  In contrast, a financial institution is in a superior position to predict who won't pay and who will.  It is as well in a better position to having greater financial resources to occasionally absorb a loss when someone fails to pay. This is just one instance of the beneficial things financial institutions do for SEUs

 


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