The practice of borrowing short and lending long
A) minimizes the cost of monitoring borrowers.
B) pools risk.
C) creates liquidity.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

The practice of borrowing short and lending long creates liquidity as it allows financial institutions to lend money for longer periods of time than they have borrowed it for, thereby increasing the amount of available credit in the economy. It does not necessarily minimize the cost of monitoring borrowers or pool risk.

The Practice of Borrowing Short and Lending Long