Question 1

Emerging market economies, compared to industrialized economies, have financial markets that:

Accepted Answer

C

Question 2

The function of providing liquidity by financial intermediaries:

Accepted Answer

Providing liquidity by financial intermediaries affects both people who need to borrow and depositors who withdraw their funds. It is a crucial role of financial intermediaries to maintain a balance between the money lent out as loans and the money deposited by the customers, ensuring that there is sufficient liquidity in the system. Hence, option C is the correct answer. Options A, B, and D are incorrect as they do not provide an accurate description of the function of providing liquidity by financial intermediaries.

Question 3

Which of the following is not a role of a financial institution acting as a financial intermediary?

Accepted Answer

Financial institutions act as intermediaries between savers and borrowers by pooling the resources of small savers, providing ways to diversify risk, and supplying liquidity. Formulating oversight regulations is not a direct role of financial institutions as intermediaries. It is typically the role of regulatory bodies or government agencies.

Question 4

Financial intermediaries pool the resources of many small savers so that they can:

Accepted Answer

Financial intermediaries, such as banks, use the funds of many small savers to make loans to borrowers seeking large amounts. Without financial intermediaries, individuals with small amounts of savings would not have the means to access the larger loan amounts they may need. Additionally, financial intermediaries are able to diversify their loan portfolios and reduce risk by spreading investments across multiple borrowers.

Question 5

Financial intermediation is:

Accepted Answer

Financial intermediation is the process of channeling funds between savers and borrowers through institutions such as banks, mutual funds, and insurance companies. In the United States, financial intermediation is much more important than direct finance through stock and bond markets. According to the Federal Reserve, in 2020, the total assets of U.S. financial intermediaries were $134.9 trillion, while the market value of U.S. stocks and outstanding bonds were $55.0 trillion and $45.7 trillion, respectively.

Question 6

Economies of scale associated with financial intermediaries means:

Accepted Answer

Economies of scale for financial intermediaries means that the cost per transaction will fall as a larger volume of similar transactions are handled. This is because fixed costs can be spread out across a larger volume of transactions, resulting in lower average costs per transaction.

Question 7

Automated teller machines provided by financial intermediaries are an example of:

Accepted Answer

Automated teller machines are an example of the ability of financial intermediaries to provide liquidity. By providing cash withdrawals and deposits 24/7, ATMs allow customers to access their funds easily, which enhances the liquidity of their deposits.

Question 8

Financial intermediaries, through their ability to lower transaction costs:

Accepted Answer

Financial intermediaries facilitate transactions by gathering funds from individuals and investing them on their behalf. By doing so, they enable a larger volume of trading in the economy. This is because not everyone has the resources or expertise to directly participate in financial markets, but financial intermediaries can aggregate small investments and invest in diverse portfolios, spreading risk and generating higher returns. As a result, financial intermediaries increase liquidity in the market and lower transaction costs for individuals, allowing for greater participation and increased economic activity.

Question 9

The fact that financial intermediaries employ experts to carry out particular activities and so lower transactions costs is usually associated with the following economic concept:

Accepted Answer

The answer of The fact that financial intermediaries employ experts...

Question 10

The fact that a financial intermediary can hire a lawyer to write one contract that works for many customers is an example of:

Accepted Answer

Economies of scale refer to the phenomenon in which the per-unit cost decreases as the level of output increases. In this case, the intermediary is able to spread the cost of hiring a lawyer to write a contract over many customers, resulting in a lower per-customer cost. This is an example of economies of scale. The law of diminishing marginal returns, the law of increasing opportunity cost, and the law of demand are not related to this scenario.

Question 11

Financial intermediaries, through their ability to lower transaction costs:

Accepted Answer

Financial intermediaries, such as banks and investment firms, act as middlemen between savers and borrowers. By pooling funds from many savers and lending them to borrowers, they are able to lower transaction costs for both parties. This allows people to specialize in what they do best at the lowest opportunity cost, leading to increased efficiency in an economy.

Question 12

Financial intermediaries:

Accepted Answer

Financial intermediaries reduce the cost of financial transactions by pooling funds from many investors and then investing those funds in a diversified portfolio of assets, which would be more difficult or expensive for individual investors to do on their own. This allows them to offer products such as mutual funds or exchange-traded funds (ETFs) that provide diversification and potentially higher returns than individual investments. Additionally, financial intermediaries can provide other services such as financial advice, which can also help to reduce costs for investors.

Question 13

Financial institutions, acting as financial intermediaries, perform all of the following, except:

Accepted Answer

Financial institutions aim to reduce transactions costs, not increase them. Therefore, "Increase transactions costs" is the correct answer.

Question 14

When the amount of direct and indirect financing are summed, the result is usually:

Accepted Answer

Direct and indirect financing can both contribute to GDP, so when they are summed, the result is usually greater than 100% of GDP. This is because indirect financing, such as through financial intermediaries, also adds to the total amount of financing in the economy.

Question 15

The reduction in transaction costs provided by financial intermediaries benefit:

Accepted Answer

Financial intermediaries (such as banks) provide benefits of reducing transaction costs for both small borrowers and small savers. Small borrowers benefit as they can access affordable credit, while small savers can earn interest on their savings without incurring high transaction costs.

Question 16

Financial intermediation exists, in part, because:

Accepted Answer

The transaction costs associated with direct finance can at times be prohibitive, which is why financial intermediation exists as an alternative form of financing. Financial intermediaries, such as banks and mutual funds, can pool funds from many investors and allocate them into different investments, reducing the transaction costs and increasing accessibility to financial markets. Therefore, option D is the best choice.

Question 17

If financial intermediaries did not have the ability to pool the resources of small savers:

Accepted Answer

Financial intermediaries, such as banks, allow small savers to pool their resources, which enables them to lend large amounts of money to borrowers at lower interest rates than they would have to pay if they were to borrow from individual savers. If intermediaries did not have this ability, borrowers needing large amounts of money would find it more costly to obtain the funds they need, as they would have to pay higher interest rates to individual savers. This would decrease the demand for loans and slow down economic growth.

Question 18

The reason financial intermediaries play such an important role in economies has to do with all of the following except:

Accepted Answer

The composition of GDP is not directly related to the importance of financial intermediaries. The other options are all key reasons why financial intermediaries are important in facilitating economic activity.

Question 19

Examples of economies of scale are:

Accepted Answer

The answer of Examples of economies of scale are:
...

Question 20

One reason financial intermediaries earn profits is because:

Accepted Answer

Financial intermediaries provide a valuable service by reducing transaction costs, which can include things like the time and effort required to find potential borrowers or lenders, the costs of verifying creditworthiness, and the expenses associated with documenting and executing loan or investment transactions. Since individuals benefit from these services, they are willing to pay intermediaries for them, and intermediaries earn profits as a result. Options A and B are not correct since individuals often have a good understanding of the fees and charges associated with using intermediaries, and intermediaries do not generally charge for services that customers do not value. Option D is also not correct since intermediaries tend to reduce transaction costs rather than raise them.

Quiz 11: The Economics of Financial Intermediation

Emerging market economies, compared to industrialized economies, have financial markets that:

The function of providing liquidity by financial intermediaries:

Which of the following is not a role of a financial institution acting as a financial intermediary?

Financial intermediaries pool the resources of many small savers so that they can:

Financial intermediation is:

Economies of scale associated with financial intermediaries means:

Automated teller machines provided by financial intermediaries are an example of:

Financial intermediaries, through their ability to lower transaction costs:

The fact that financial intermediaries employ experts to carry out particular activities and so lower transactions costs is usually associated with the following economic concept:

The fact that a financial intermediary can hire a lawyer to write one contract that works for many customers is an example of:

Financial intermediaries, through their ability to lower transaction costs:

Financial intermediaries:

Financial institutions, acting as financial intermediaries, perform all of the following, except:

When the amount of direct and indirect financing are summed, the result is usually:

The reduction in transaction costs provided by financial intermediaries benefit:

Financial intermediation exists, in part, because:

If financial intermediaries did not have the ability to pool the resources of small savers:

The reason financial intermediaries play such an important role in economies has to do with all of the following except:

Examples of economies of scale are:

One reason financial intermediaries earn profits is because: