Financial intermediaries

Question

Quizplus · Accepted Answer

Financial intermediaries are institutions that specialize in taking deposits from households and firms and channeling those funds to other borrowers. They play a crucial role in the economy by bridging the gap between savers and borrowers, and by helping to allocate resources efficiently. Financial intermediaries can be depository institutions like banks or non-depository institutions like insurance companies or mutual funds. While they do charge borrowers a higher interest rate than they pay to lenders, this is necessary to cover their costs and earn a profit to remain in business. They also help to reduce risk for both lenders and borrowers by screening potential borrowers and diversifying their portfolios. Overall, financial intermediaries play an important role in promoting economic growth and development.

Financial Intermediaries