A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that
A)both involve the use of financial markets.
B)both involve funds being channeled from savers to borrowers through financial intermediaries.
C)both involve a reduction in the overall level of liquidity in the financial system.
D)both involve in an increase in the overall level of risk in the financial system.

Question

Quizplus · Accepted Answer

Both activities involve the transfer of funds from savers to borrowers, meaning they both rely on financial intermediaries to facilitate the transaction. In the case of the bank, it is taking funds from depositors and lending them to a local business. In the case of the pension fund, it is taking contributions from its members and investing them in shares of a company. Both activities involve the transfer of financial resources from one party to another, with the intermediary earning a profit from the transaction.

A Bank Lending Depositors' Money to a Local Business and a Pension