Which of the following functions are performed by depository institutions?
I. They make long- term loans using short- term deposits, thereby creating liquidity.
II. They efficiently gather funds from a large base of depositors.
III. They concentrate risk.
A) I only
B) II only
C) III only
D) both I and II

Question

Quizplus · Accepted Answer

Depository institutions perform both functions I and II. Function I refers to their ability to make long-term loans using short-term deposits, which is known as the transformation function. Function II refers to their ability to efficiently gather funds from a large base of depositors, which is known as the aggregation function. Function III, concentrating risk, is not a primary function of depository institutions.

Which of the Following Functions Are Performed by Depository Institutions