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What is the primary role of financial intermediaries?
- a)Issuing government securities
- b)Facilitating the transfer of funds from lenders to borrowers
- c)Regulating financial markets
- d)Providing investment advice to individuals
Correct answer is option 'B'. Can you explain this answer?
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What is the primary role of financial intermediaries?a)Issuing governm...
Understanding Financial Intermediaries
Financial intermediaries play a crucial role in the economy by acting as middlemen between lenders and borrowers. Their primary function is to facilitate the transfer of funds, which is essential for efficient financial markets.
Key Functions of Financial Intermediaries
- Pooling of Funds
Financial intermediaries collect funds from multiple savers and investors, pooling their resources to create a significant capital base. This aggregation allows them to provide loans to borrowers more effectively.
- Risk Assessment
They evaluate the creditworthiness of borrowers, which helps in determining interest rates and loan terms. This risk assessment benefits both lenders and borrowers by ensuring that funds are allocated efficiently.
- Maturity Transformation
Intermediaries manage the mismatch between the short-term deposits from savers and the long-term loans given to borrowers, thereby offering liquidity to savers while meeting the funding needs of borrowers.
- Transaction Cost Reduction
By centralizing transactions, financial intermediaries reduce the costs associated with lending and borrowing. This includes lower search and information costs, making it easier for individuals and businesses to access funds.
Importance in the Economy
Financial intermediaries enhance the efficiency of the financial system by:
- Promoting Economic Growth
By channeling funds effectively from savers to productive investments, they contribute to economic expansion.
- Stability
They help stabilize the financial system by managing risks and providing liquidity, thus reducing the likelihood of financial crises.
In summary, the primary role of financial intermediaries is to facilitate the transfer of funds from lenders to borrowers, ensuring that financial resources are used optimally in the economy.
Financial intermediaries play a crucial role in the economy by acting as middlemen between lenders and borrowers. Their primary function is to facilitate the transfer of funds, which is essential for efficient financial markets.
Key Functions of Financial Intermediaries
- Pooling of Funds
Financial intermediaries collect funds from multiple savers and investors, pooling their resources to create a significant capital base. This aggregation allows them to provide loans to borrowers more effectively.
- Risk Assessment
They evaluate the creditworthiness of borrowers, which helps in determining interest rates and loan terms. This risk assessment benefits both lenders and borrowers by ensuring that funds are allocated efficiently.
- Maturity Transformation
Intermediaries manage the mismatch between the short-term deposits from savers and the long-term loans given to borrowers, thereby offering liquidity to savers while meeting the funding needs of borrowers.
- Transaction Cost Reduction
By centralizing transactions, financial intermediaries reduce the costs associated with lending and borrowing. This includes lower search and information costs, making it easier for individuals and businesses to access funds.
Importance in the Economy
Financial intermediaries enhance the efficiency of the financial system by:
- Promoting Economic Growth
By channeling funds effectively from savers to productive investments, they contribute to economic expansion.
- Stability
They help stabilize the financial system by managing risks and providing liquidity, thus reducing the likelihood of financial crises.
In summary, the primary role of financial intermediaries is to facilitate the transfer of funds from lenders to borrowers, ensuring that financial resources are used optimally in the economy.
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What is the primary role of financial intermediaries?a)Issuing governm...
Financial intermediaries play a crucial role in facilitating the transfer of funds from those with surplus funds (lenders) to those in need of funds (borrowers).
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What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer?
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What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer?.
What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the primary role of financial intermediaries?a)Issuing government securitiesb)Facilitating the transfer of funds from lenders to borrowersc)Regulating financial marketsd)Providing investment advice to individualsCorrect answer is option 'B'. Can you explain this answer?.
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