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disintermediation Can You please elaborate the interpretation of the disintermediation concept in this image.
This is taken from the page number 399 of bpp book.Thanks a lot sir.
Disintermediarisation is effectively cutting out the middle-man.
The picture makes it look more complicated than it is.
One example is that banks act as intermediaries – lenders deposit money with the bank, and the bank lends that money out. Obviously the bank makes a profit out of it. Disintermediarisation would be if the borrower borrowed directly from the lender.
By cutting out the banks profit, they could both be better off.I knew it but the way it explains in the book is required to be known or not for p4 exam?
As these issues are being made in a complicated manner and same are being asked in the exam as well
So what approach shall I follow to learn it in simplistic manner or I should go to know about the items in a more complex mannerYou only really need to be able to explain the idea of it.
Incidentally, although I explained disintermediarisation, I did not explain securitisation.
As example of this is if you have a bank giving out mortgage loans, then they can bundle the loans together and issue bonds to investors based on the loans. The interest received on the loans goes to pay the investors in the bonds.
Again, the bank is acting as an intermediary – you can have lots of investors (in the bonds) who are in a sense lending money to lots of borrowers.
It is called securitisation because the bank is turning the loans into securities (the bonds).
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