Final answer:
A clearing firm is a business entity that connects customers with the interbank market, facilitating the trading of financial instruments such as foreign exchange. It acts as a middleman between buyers and sellers, ensuring smooth settlement of transactions.
Step-by-step explanation:
This type of business/financial institution is known as a clearing firm. A clearing firm is a financial institution that acts as a middleman between buyers and sellers in the financial market, helping to facilitate the smooth settlement of transactions. It provides a platform for its customers to interact with the interbank market and access various financial instruments, including foreign exchange, securities, and derivatives.
For example, if a customer wants to exchange a substantial quantity of currency, they can go to a clearing firm that specializes in foreign exchange services. The clearing firm will introduce the customer to the interbank market, where they can trade their currency at competitive rates offered by various dealers, which include banks and other firms.
In summary, a clearing firm is a business entity that connects customers to the interbank market, providing access to a wide range of financial services, including foreign exchange trading.