The presence of transaction costs in financial markets explains, in part, why: financial intermediaries and indirect finance play such an important role in financial markets.
What are financial costs?
Financial costs refer to the charges that come along with financial transactions. When people who make transactions experience excessive charges and transaction costs, they will be willing to perform the same transactions with intermediaries who can offer the same service at lower costs.
That is why there is a saturation of financial intermediaries in the financial markets. They take away some of the burdens on the main markets.
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