The practice of borrowing short and lending long
A) pools risk.
B) minimizes the cost of monitoring borrowers.
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 by transforming short-term liabilities (deposits or short-term borrowings) into long-term assets (loans or investments). This process allows financial institutions to provide funds to borrowers for longer periods, enhancing the availability of credit in the economy.

The Practice of Borrowing Short and Lending Long