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In order to properly allocate capital to where it is most beneficial, financial institutions establish a market for money and assets.
A corporation engaged in the business of handling financial and monetary activities, such as deposits, loans, investments, and currency exchange, is referred to as a financial institution (FI).
Financial institutions are vital because they offer a market for money and assets, allowing for the effective allocation of capital to its most advantageous uses. One example is when a bank lends money to borrowers after receiving deposits from clients. Any one person is unlikely to be able to discover a suitable borrower or understand how to service the loan without the bank acting as a middleman. The depositor can therefore obtain interest through the bank. Similar to this, investment banks locate investors to whom they advertise a company's shares or bonds.
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