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What is Financial Intermediation?

Discuss about the Role of Financial Intermediary for Bread Talk Group.

Role of financial intermediary and how the bank could be able to exercise caution in lending money to their customers

The financial intermediation or intermediary like a bank, in this case DBS concurrently interrelates with the lenders or savers as well as those borrowing funds and generates a range of services which are helpful in transforming its obligations like deposits into assets which could be loans. The role of the facilitation of these assets or liabilities into liabilities or assets is referred to as intermediation. The intermediaries permit indirect lending as well as borrowing between borrowers and savers through intermediation. The lending directly between savers as well as borrowers alludes to barter trade which is characterized by inefficiencies in the market. A double coincidence of wants has to take place for financial transactions to be completed like in barter trade. Individuals with saved funds must have a particular sum of funds which they will be willing to give lenders for a given time period.

These holders of savings have to find an individual who needs to be lent these funds in matching conditions, and the underlying approximated sum of funds as the identical time period. Lending directly will allow an agreement of some kind that must be negotiated or bargained. Consequent contacts involving interest repayment as well as principle must be accounted for. Lenders will also encounter another problem of having restricted capability of diversification as well as minimizing their exposure to the risk of default. Like DBS, lenders attempt to undertake this by loaning very trivial amounts to various lendees. However, the transactions cost will be excessively up. These intermediaries are in existence since they have the ability to lower the cost of transaction while at the same time minimize default risk.

Various functions have been associated with the financial intermediation. These institutions are able to enhance efficiency of economies in the following five channels. One of this channels is by facilitating transactions, creation of portfolio, spreading risk over time, reducing the problem of asymmetric information as well as easing the household liquidity constraints. Financial institutions permit the indirect lending or what is commonly known as the financial intermediaries and they include both deposit takers as well as non-deposit-takers. Some of the types of financial intermediaries include deposit-taking, insurance companies as well as pension fund and the third category is investment dealers as well as funds purely for investment in addition to financial institutions of governments.

Functions of Financial Intermediaries

The deposit-taking organizations are christened ‘depository institutions’ and admit as well as control deposits thereby making loans. Depository intermediaries are of two kinds; near banks and chartered banks. The chartered banks are larger than near banks and regulated federally whereas the regulation of near banks is done through a mixture of both federal and provincial regulations. Near banks entails trust corporations, credit unions and mortgage loan companies.

Another intermediary is called ‘insurance companies’ as well as pension funds whereby the insurers offer clients safeguard against a range of hazards whereas pension funds undertake the management of pension or pension plans like a registered retirement savings. Investment funds alongside additional other intermediaries whereby the funds are recognized as mutual funds for the venture in a vast variety of activities as well as instruments.

There are also business and consumer financial intermediaries such as sales, finances as well as customer loan companies alongside investment dealers. Government financial institutions also form part of intermediation where deposit-taking government institutions undertake intermediation roles. Financial intermediaries, therefore, crate a vast variety of financial assets that investors can purchase and include in their respective portfolios. The portfolio diversification is, therefore, a product of financial intermediaries. The intermediaries facilitate the diversification of portfolios by with an increasing quantity of financial assets and hence assets with numerous risk levels thereby reducing the entire portfolio risk.

In this regard, financial intermediaries assist stakeholders to decrease portfolio risk via portfolio formation. Financial intermediaries allow lending indirectly where savers lend funds to intermediaries, who subsequently, lend such money to borrowers. Financial intermediaries act as brokers as well as venders since they assume a possession place. Financial intermediaries incur deposit liabilities while acquiring securities at the same time.

The financial intermediaries have gained considerable significance over the recent past. Despite this revelation, the literature affirms that businesses still have little understanding of its role particularly the implication of business undertaken by OFIs and its effects for monetary demand. Accordingly, the implication of OFIs on monetary and credit developments is increasingly attracting the attention of the central banks.  The financial intermediaries hold money besides the monetary financial institutions (MFIs) and such money have become much more significance in the analysis of the monetary developments over the previous decades. OFIs, for example, provide financial services to the households and non-financial corporations as well as trade in financial markets on their individual behalf. The sector of the financial intermediary include financial institutions established by MFIs to enhance the securitization of loans which would otherwise be held on the MFIS balance sheet.

Types of Financial Intermediaries

The credit lending is an important factor that shapes the ability of the business to expand. Many business cannot raise the required capital on their own but perform increasingly well when given the opportunity to access credit from the credit lending institutions.  As for the DBS, it has also benefited from this arrangement where it has been able to access loans from various credit lending institutions at some interest and hence has been able to successfully expand its operation in the world. Credit lenders, therefore, ensures the continuity of the businesses even during the recession or downturns so that business have the capacity to surpass hard times.

Caution in Credit Lending

Even though credit lending has been beneficial for a number of companies, caution is to be taken when acquiring loans. Companies must be aware of the rates of interests to be paid in return before taken in loans. Loans attracts interests besides the principal amounts and hence there is a need for companies to be wary of the terms and conditions of the loans. A firm must be able to showcase its ability to pay for these loans before being given the opportunity to acquire them. A firm should be able to showcase this through its current ratio since giving a company too much credits will mean that the entire firm is a liability of the creditors and this makes the firm unable to make its own decision but to have limited powers. A firm should only borrow money for investment and not to pay salaries and wages since the money borrowed should be seen to bring back profits to the firm.

Asymmetric information and the measures that DBS bank should have taken prior to granting of a loan facility and after the loan money have been issued to the customer.

Asymmetric Information

The problem of asymmetric information arise from a condition whereby one party to a contract owns knowledge which the other person lacks. The asymmetric information problem provide the background for the moral hazard and adverse selection problems. DBS could have gathered and communicated information regarding the range of features of financial assets as well as performance of market to both demanders and suppliers of financial assets including Jason Holdings. This could have helped DBS to decrease the information gap between the entities, hence the problem of asymmetric information.

Role of Asymmetric Information

Asymmetric information describes information failure and it comes in when one party to an economic transaction possess greater substantial acquaintance than the other party. This normally manifest itself when the seller of a good or service has a greater knowledge compared to the buyer, though the conflicting is conceivable. With asymmetric information existing in the market, it is quite hard for the buyers to have the adequate information regarding the service or the product to make informed decisions. The presence of asymmetric information in the economy may make the company or the seller to benefit at the expense of the buyer. For effectiveness in the market, there is a need for both parties to adequate and update knowledge about the market so that all the decisions made are fact-based. Asymmetric information is therefore working against the perfect market arrangements and hence makes it difficult for people to transact favorably in the market.  

Credit Lending and Its Importance

Measures before Loan Granted

Loans cannot just be granted to anyone or any institutions. Various factors must be taken into consideration before one is granted the loan. One of these factors is the amount of loan required. One has to know the amount of loan require to be issued to the person who wants the loan before giving out the loan. Determining the amount of loan required makes it possible to accept or reject the loan application. Another crucial factor is the credit worthiness of the person who wants the loan. The lending entity must access worthy one is credit worth to be given the loan so as to prevent cases of default. Another factor is the duration of the loan as the longer the duration the higher the interest rates.

One has to confirm the period one would wish to pay back his loan so that one does not make a mistake of issuing loans that cannot be paid back. The other factor that must be considered is the current loans that the applicant has in his portfolio. By gauging the running loans that one has, it is possible to determine whether one will be able to pay back the money or not.  The higher loans one has the burden he has in paying back the loan and hence this should assist in rejecting the application. Another factor to be considered is the purpose of the loan being requested.

One has to be prove that the loan is going to be put into better use and if he cannot prove this fact, then the loan should be rejected. Another factor to consider is the collateral from the application.  Lenders must ensure there is security for the loan in order to issue the loan. This is significance since the securities can be used to pay for long in case of a defaulter. Another factor should be the guarantor. Lenders need to ensure that any person who wants the loan has a guarantor who is credit worth and also wealthy enough to pay in case of the default. Another issue that has to be checked on the side of the applicant is the interest rates charged by the banks or any lending institutions and the penalties in case of delayed repayment or default. This will allow the applicant to make up his mind on whether or not to take the loan and accept the terms of conditions attached to such liabilities.

Caution in Credit Lending

Various measures must also be taken after the loan has been granted. One of these measures is to ensure that the loan is put to the use as reflected in the application. Taking this measure is crucial since if the loan is not used for the purpose it was taken, there is a high risk that the person will default. Lending institutions should therefore sends the agents to check and ensure that the projects for which the loans were taken are implemented strictly. Another factor that should be taken is to create a relationships with the person who took the loan by giving him or her pieces of advice on how to use the money to meet the intended purpose. This will ensure that the lenders follow strictly the progress of the loan lent to be able to make a decision whether one will default and make the necessary decision early enough to avoid the loss of the entire loan. Another factor that should be taken into consideration is to always remind the client of the day of the repayment in advance until the actual day so as to keep them on toes to repay the loan lent to them.

Identification of the problems/issues apply the academic concepts/theories on what DBS bank should do to protect itself from further loss since a letter of demand has been issued to the company

The issue is triggered by the letter of demand sent by local lender, DBS. The Bank solicitors sent the letter cancelling particular banking facilities granted to Jason Parquet Specialist. The Bank letter of demand indicates a demand of about S$7.29 million. Jason Holdings is said to have guaranteed this repayment amount as said by the group in a filing to the local bourse. Jason Holdings is disputing this and has its board of directors seeking legal advice on a letter of demand. DBS has given Jason Holdings an ultimatum to repay the stated amount within a week. The solicitors of DBS bank has taken this step as a measure to safeguard the interest of the bank alongside the commencement of a legal proceedings as well as realization of any security. The shareholders are subsequently stranded alongside potential investors since the may lose their investment. DBS should ensure that no more issuance of shares takes place in Jason Holdings by seeking a court order to this effect.

Concept / Theory (1)

Asymmetric Information in Credit Lending

The problems in issuing or lending can be dealt with based on the requirement for security or collateral. Whereas many lending institutions require a proof of security, other lenders have waived this requirement and are taking risks to lend people loans even without interest. This has created a conflict and a problem among the lending institutions and hence making it even hard to access loans. However, it is required that loan applicants provide their securities. The problem is even further compounded the types of securities acceptable to the lending institutions. This creates a problem since at one hand lenders would want to make a profit by granting loans while at the same time, their hands are tied on the choice of the security for loans to be issued. It calls for trust between the lender and the lender to give and repay the loan. This trust be very difficult to gain and hence derailing the issuance of loans even though people and organization could be in serious and genuine needs for these loans.

Another concept or theory is that of the interest rates. Higher interest rates are charged on loans which take a longer period to be paid. However, loans that are payable in short duration tends to attract low interest rates. On one hand, the lenders require that their loans be paid back with interest but at the same require to maximize on the interest paid. A problem arises where lender may fear that people may default if loans take longer time be repaid while at the same time they wish that should the loans stay for long and be paid eventually they will earn more. Lenders on the other hand would wish to have adequate time to use the money before repaying.

However, this desire is limited to the fact that they will pay much interest than they would do if they pay within a short period of time. Another problem that exist based on the interest rates is the amount of the interest to be paid on top of the principal amount. Some lenders will issue loans without the collateral but charge high interest due to the high rates of defaulter whereas other lenders will tend to charge low interest as a motivation for repayment. To the loan application they have to contend with the problem of high interest rates so as to benefit from the money they have received as loans.

Concept / Theory (3)

The third concept is the issue or the theory of grace period. Lenders would want to minimize the grace period before one starts to repay the loans back whereas those who take the loan would advocate lengthy grace periods. It is therefore a problem which may derail the duration within which a loan application is finalized. While lenders want shorter grace period as an assurance that they will receive their lent money, the loanees require lengthy period to reorganize and start paying for loans without feeling the heat of the loan. They first need to make some money out of the loan and remit it back to the business to make more profits so that at the time they start repaying of the loans, they already have the opportunity to remain stable without being disrupted in their operation for the continuity of their businesses.

Topic Two: Financial System

Brief Background information of Bread Talk Group

Bread Talk group was founded in 2000 in Singapore as well has quickly stretched to be a unique everyday brand proprietor hence created a brand or place in the international phase with its bakery, restaurant, as well as food atrium footpaths. Currently, the company has almost one thousand outlets in seventeen locations and generates culinary magic for daily recipes which one savor, bringing together individuals with preference as well as tastes around the globe. The company has a staff strength of seven employees and runs over eight fifty bakeries. It has globally much-admired Din Tai Fund restaurants in Singapore alongside (Shaviro 2011, p. 65) Thailand and sixty prized Food Republic food atria in Hong Kong, Thailand, China, Taiwan, Malaysia, as well as Singapore.

The financial results of this Group alongside the stock information as well as share prices alongside the corporate presentation all display a successful company alongside its annual reports and circulars. The Group is deeply committed to providing timely, accurate as well as concise financial information. The franchise of the Group is offers rewarding careers while making a material change to individuals in their societies. The Group is deeply committed to providing timely, accurate as well as concise financial information. The franchise of the Group is offering satisfying careers whereas making an actual change to individuals in the societies. The Group quickly expand its franchise work as well as presently looking for well-matched enterprises to be part of its growing success. The Group has forged partnership in Thailand, Hong Kong, China, Vietnam, Saudi Arabia, Cambodia, Myanmar, Sri Lanka, and Malaysia, Indonesia Kuwait, Philippines, Oman and many other countries to date. The Group further looks forward to working with fervent and concurring partners to remain a force to reckon with in a global perspective.

The examination and assessment of Financial System of Singapore reveals a well-regulated system. As announced by the Monetary Authority of Singapore (MAS), assessment under the IMF’s FSAP demonstrates that Singapore’s financial system is well-regulated as well as highly developed. Such an assessment has affirmed Singapore’ standing as a sound as well as stable financial center. Singapore Financial System has a high degree of international standards compliance for the supervision and regulation of the banking, insurance as well as securities sector alongside the financial markets infrastructures all which are key components of Singapore’s Financial System. The stress test of the system shows that banks and insurers in Singapore are resilient to adverse macroeconomics situations. The crisis management as well as resolution component arrangements in Singapore are strong. Singapore has the required legal framework with responsibilities and tools allocated among the public entities as well as robust organizations for information coordination and sharing.

Explaining the types of financial products and services offered by financial intermediaries and their roles in the Singapore financial system which the business community can access

The insurance companies as intermediaries assist investors deal with a risky investment by issuing policies that enable the investors to insure against the risk of default. The insurance company thus offer insurance and assist in spreading the risk of default to investors. Financial advisers offer specialist advice on the behalf on an investor thereby saving them understanding the details of the financial markets as well as utilizing time searching for the best investment. The credit union which are informal kinds of banks offer amenities for lending as well as depositing inside a given community. Mutual funds or investment trust describes mutual investment schemes which pool the small savings of one investor and subsequently permit a large investment fund. This makes small investors the beneficiaries of being part of the large investment trust which allow them benefit from small commission rates available to large purchases.   Loans are one of the major financial product given to the clients. Financial institutions give loans to the traders to expand their business and in return get profits through the payment of interest rates.  Mortgages are also essential financial products issued to the clients. People and organization get mortgages and promise to pay in the future.  Deposits are also financial products where the people are given an opportunity to deposit their money in the banks to earn interest on deposits. People and organizations use this as the means of wealth creation.

The Group has a family of eight thrilling brands which have altered the way one would view his everyday staples. It has revolutionized the bakery since two thousand, where it conceits itself on savoring clients with its blend of exclusive ideas which have projected new food cultures traversing its restaurant, bakery and food atrium divisions.  The Group seeks to revolutionize and undertake processes in a unique style as they instill imaginative differentiation in their retail notions thereby value creation for clients as well as deliver the food one loves. The Group has gathered customer and industry tributes alike from an assembly of global organizations.

How Bread Talk Group can access the financial systems through the use of financial markets, financial intermediaries and financial instruments to facilitate its business activities.

Bread Talk has the ability to access financial systems via financial intermediaries and markets, as financial instruments.

Financial markets

This is that market for financial assets or instruments and it is a contrivance by which sellers (borrowers) and buyers (lenders) of financial asset including Bread Talk meet thus facilitating lending directly. They exist to offer various services to the enterprises. Without the assistance of financial markets, many business can have daunting challenges. Over the recent past, there is been a growth in the financial markets and their continued support to business. Many securities are traded in these markets through their financial institutions. Many firms do benefit from these transaction since they keep various portfolio which increasingly bring advantages of stability as they diverse the risk from one security to the next. Financial markets are therefore important markets that have acted as the backup for firms in a global perspective. Stability in the financial markets is an added advantage to the business since they are assured of the continuity of their business as they get advisory services which make their operation blossom. The Group has penetrated various markets through its partnership. It has fully penetrated and globally much-admired Din Tai Fund eateries in Singapore alongside Thailand and sixty prized Food Republic food atria in Hong Kong, Taiwan, China, Malaysia, Thailand and Singapore. Also the firm is doing successfully well in Singapore markets with clients giving positives feedbacks year round.

Financial intermediaries

Financial intermediaries are very important to business since they dictate the money supply and demand in the economy. Financial intermediaries have served as agents or bridging the gaps between traders and the financial institutions which facilitate the operation of the financial markets and the businesses in a global perspective. The duration that one would take, for example, trying to reach out to the financial market is shortened due to the presence of the financial intermediaries. The time recovered is shifted to other critical functions which eventually lead to increase productivity and hence profitability index shoots.  The intermediaries exist in this financial markets to help Bread Talk with in various ways. They can insure Bread Talk though insurance companies and can as well give advisory services through financial advisers. Credit union will also benefit Bread Talk by providing facilities for lending as well as depositing. Also mutual funds or investment trust are mutual investment schemes which can pool small saving from individuals investors including Bread Talk to enable a larger investment fund. Bread Talk may benefit from mutual funds by receiving smaller commission rates available to big purchases. Bread Talk will also benefit from the lower search cost, economies of scale as well as convenient amounts offered by financial intermediaries. It has its intermediaries throughout its worldwide commended Din Tai Fund cafeterias in Singapore alongside Thailand and sixty valued Food Republic food atria in Hong Kong, China, Taiwan, Malaysia, Thailand and Singapore which gives it an international presence and hence continued to partner with other like-minded organization globally.

These are the monetary contracts between parties and can be created, traded, modified as well as settled. These instruments may also be cash, evidence of a possession interest in a firm or share and they can as well be contractual right to deliver and receive cash, called bonds. Bread Talk Group is driven by its individual internal Research and Development club whereby their Masterchefs invoke cooking enchanted for a variety of recipes which people savour from their brands daily (Abbasian et al. 2015, p. 67). It is collaborating with a global group of consultant from Japan, France, Germany, Taiwan and Spain thus aiming at bringing people the best amalgamation of cookery talents which encapsulates a range of tastes. Combing the best of Asian and Western influences thus finalizing a blend of indigenous culture with superiority ingredients as well as their Chefs’ recent world motivations. It issues bonds and shares as well as other financial securities to boost its business.

Academic Review

 Agency problem

Agent problem is inevitable in Bread Talk Group since it is a large firm utilizing the principal-agency principles to drive its agenda. Since the Group employs over 800 staff, the conflicts arise when driving its agenda. Another agency problem exist since the Group has various partnerships with the people working on their behalf.


Understand the agency problem is essential in helping the Group to address the issues arising from such an arrangement. Accordingly, the Bread Talk Group will has to deal with these problems much better when they are aware of these problems.


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