How do financial intermediaries enhance the efficiency of money and capital markets according to the chapter?

Financial intermediaries enhance the efficiency of money and capital markets by facilitating the transfer of funds between savers and borrowers. They create new forms of capital, such as certificates of deposit, which are safer and more liquid for savers. This process allows for a more effective allocation of capital, contributing to economic growth.

Financial intermediaries, such as banks and mutual funds, play a crucial role in the capital allocation process by obtaining funds from savers and using those funds to invest in businesses. They provide liquidity and safety for savers, allowing them to hold intermediary securities instead of direct investments in riskier assets. This system increases the overall efficiency of financial markets, enabling a smoother flow of capital and supporting economic development.