Economists believe that the major reason that financial intermediaries move a greater volume of funds between borrowers and lenders than do financial markets is
A)the advantage that financial intermediaries have in reducing information costs.
B)the tax advantages that financial intermediaries receive from the government.
C)the higher interest rates that financial intermediaries are able to offer to lenders.
D)the lower interest rates that financial intermediaries are able to offer to borrowers.

Question

Quizplus · Accepted Answer

Financial intermediaries have the advantage of reducing information costs for both borrowers and lenders by gathering information about creditworthiness, pooling funds, and investing in a diverse portfolio of assets. Thus, they can reduce transaction costs and risks, and offer better returns to investors while providing loans to borrowers at lower interest rates. This efficiency in allocating funds between borrowers and lenders is why financial intermediaries move a greater volume of funds than financial markets. The other options (B, C, and D) are not the major reasons for this phenomenon.

Economists Believe That the Major Reason That Financial Intermediaries Move