Asset transformation can be described as
A)borrowing long and lending short.
B)borrowing short and lending long.
C)borrowing and lending only for the short term.
D)borrowing and lending for the long term.

Question

Quizplus · Accepted Answer

Asset transformation involves borrowing short-term funds and lending the borrowed funds for long-term investments. This process allows financial intermediaries to earn a spread between the borrowing and lending rates, which is their primary source of profit. Choice A is incorrect because borrowing long and lending short is not asset transformation. Choice C is incorrect because asset transformation involves both short and long-term borrowing and lending. Choice D is incorrect because borrowing and lending only for the long-term is not asset transformation.

Asset Transformation Can Be Described as