Just need help with these two, thanks 1. Which of the following is not a major r
ID: 1102770 • Letter: J
Question
Just need help with these two, thanks
1.
Which of the following is not a major role of financial institutions?
a) It seeks to minimize interest rates that it pays savers.
b) It seeks to diversify assets to reduce risk.
c) It seeks to minimize transaction costs.
d) It seeks to minimize information costs.
2.
Martha needs to acquire funds in order to expand her bakery. She doesn’t want to give up control of her business, and her credit score is weak due to a recent foreclosure of her house. What should Martha do to acquire these funds?
a) Issue stock to willing investors.
b) Borrow money from her local bank.
c) Issue bonds to willing investors.
d) She should do all of the above.
Explanation / Answer
The financial institutions does not seek to minimize interest rates that it pays to the savers. As the return to savers gets loww the depositers will not deposit their sums and identiofy the alternative investment paths.
Martha needs to acquire funds in order to expand her bakery. She doesn’t want to give up control of her business, and her credit score is weak due to a recent foreclosure of her house. Martha should issue bonds to willing investors as she will loose no control over her business and creedit score will not matter for issuing bonds which can be easily repaid on maturity without diluting control.
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