Final answer:
The financial flow between savers and borrowers is facilitated by banks, which collect deposits and make loans, earning a profit from the interest rate differential. Savers receive interest on deposits and borrowers repay loans with interest, maintaining the cycle of capital.
Step-by-step explanation:
The financial flow of exchange between savers and borrowers occurs through the financial markets, where savers supply financial capital by making deposits at banks, and borrowers demand financial capital. Banks function as financial intermediaries by accepting deposits and extending loans.
Individuals or businesses who save money are on the supply side, while those in need of capital for things like buying a car, paying for education, or starting a business are on the demand side.
Banks pay interest to savers when their money is deposited and charge interest to borrowers when they take out loans. The difference between these interest rates represents the bank's profit margin.
Over time, as borrowers repay their loans with interest, this repaid capital flows back into the bank, allowing the bank to pay interest back to the savers while also covering its operational costs and generating profit.