Banks are financial intermediaries because they:

a) hold all the money in the economic system in currency form.

b) print money as needed for borrowers whether business, individual, or government entities.

c) accept deposits from businesses, individuals, and government entities.

d) operate between a saver who deposits money and a borrower who seeks a loan.

Question

Perla Arellano

Business

11 January, 17:51

Banks are financial intermediaries because they:

a) hold all the money in the economic system in currency form.

b) print money as needed for borrowers whether business, individual, or government entities.

c) accept deposits from businesses, individuals, and government entities.

d) operate between a saver who deposits money and a borrower who seeks a loan.

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Answers (1)

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Noble · Answer 1

D

Explanation:

The financial intermediary function of banks means they take money from those who do not make current economic use of it and channel those funds to borrowers who need money for different purposes.

Bank borrowers include; large corporate entities, small businesses and individuals.

In developing countries for instance. banks take deposits from savers and give them single digit interest on their savings per annum (say 4% per annum), and loan out the same funds to businesses to get double digit interest rate (above 20% per annum). The difference between the two interest rates is one of the biggest revenue stream for banks.

NOTE: While commercial banks take deposits from both retail, corporate and high net-worth individuals. Merchant banks only take deposits from corporate entities and high net-worth individuals. Merchant Banks do not deal with retail customers.