Financial intermediaries reduce the costs of negotiation between savers and investors through:

Question

Quizplus · Accepted Answer

Financial intermediaries such as banks and mutual funds pool the funds from savers and then invest them in different securities, thereby reducing the costs of negotiation between savers and investors. This way, the intermediaries can diversify their investments and manage risk better. The requirement of collateral (A) and provision of deposit insurance (B) are other functions of financial intermediaries, but they do not necessarily reduce the costs of negotiation between savers and investors. The pooling of investors' debts (D) is not a common function of financial intermediaries.

Financial Intermediaries Reduce the Costs of Negotiation Between Savers and Investors