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Questions and Answers
What is the role of financial intermediaries?
What is the role of financial intermediaries?
- To provide direct finance to borrowers.
- To generate financial claims whenever an act of borrowing takes place
- To transfer and allocate funds to their most productive opportunities. (correct)
- To act as intermediaries between borrowers and lenders.
What do lenders want in the lending process?
What do lenders want in the lending process?
- To bridge the gap between borrowers and lenders.
- To obtain funds directly from borrowers.
- To offer suppliers of funds safety and liquidity.
- To minimize risk and cost, and value liquidity. (correct)
How do financial intermediaries minimize transaction costs and information asymmetries?
How do financial intermediaries minimize transaction costs and information asymmetries?
- By bridging the gap between borrowers and lenders.
- By generating financial claims whenever an act of borrowing takes place
- By providing direct finance to borrowers.
- By using funds deposited for loans and investments to offer suppliers of funds safety and liquidity. (correct)
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Study Notes
- Financial intermediaries transfer and allocate funds to their most productive opportunities.
- Banks act as intermediaries between borrowers and savers.
- Banks collect surplus funds from savers and allocate them to borrowers, promoting better allocation of resources.
- Borrowers obtain funds directly from lenders in direct finance.
- Financial claims are generated whenever an act of borrowing takes place.
- Financial intermediaries bridge the gap between borrowers and lenders to reconcile their often incompatible needs and objectives.
- Financial intermediaries offer suppliers of funds safety and liquidity by using funds deposited for loans and investments.
- Transactions costs and those derived from information asymmetries are minimized by financial intermediaries.
- Asymmetric information creates problems in all stages of the lending process.
- Lenders want to minimize risk and cost, and value liquidity. Borrowers want funds at a particular specified date and at the lowest possible cost.
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