Which of the following is a financial intermediary that serves as a bridge betwe

Question

Which of the following is a financial intermediary that serves as a bridge between savers and borrowers in the loanable funds market model?

a) Mutual funds

b) Corporations

c) Government

d) Stock market

Which of the following is a role of financial institutions?

a) Increasing product demand.

b) Diversifying assets to reduce risk.

c) Establishing marginal tax rates.

d) Controlling inflation.

Which of the following is a way banks reduce information costs?

a) Screening firms.

b) Disciplining firms.

c) Providing standardized products.

d) Pooling money into portfolios.

Explanation / Answer

Q1 Option A.

Mutual funds.

Mutual funds transfers money from many Investors to purchase securities.

It is actually a pool of money which is collected from the Investors for investing in money market, Bonds, stocks etc.

Each share in a mutual fund participate equally in the gains or losses of the fund.

Q2. Option b.

Diversifying assets to reduce risk.

Financial institutions use diversification as a technique to reduce risk by allocating assets among financial instruments,iIndustries etc,

Diversification aims to satisfy Long term financial goals and at the same time minimizes risk.

Q3. Option c.

Providing standardized products.

Banks reduce the information cost by standardizing quality of products by using efficient raw materials and so on producing large scale standardized products produces cost and increases productivity.

Standardization reduces the size of the product makes them powerful and cost effective.

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