Financial Intermediation Quiz

Financial intermediation is:

• far less important than direct finance through stock and bond markets.

• only a little more important than direct finance in the United States.

• much more important than direct finance through stock and bond markets.

• the same thing as finance through stock and bond markets.

Financial intermediation exists, in part, because:

• financial markets work so well.

• direct finance through stocks and bonds is the dominant form of financing.

• transaction costs of financial intermediation is always higher than direct finance.

• the transaction costs associated with direct finance can at times be prohibitive.

When the amount of direct and indirect financing are summed, the result is usually:

• greater than 100% of GDP.

• equal to GDP.

• less than GDP.

• approximately 50% of GDP.

Emerging market economies, compared to industrialized economies, have financial markets that:

• differ in composition and size.

• differ in composition but not in size.

• are the same in composition but differ in size.

• are similar in composition and size.

The reason financial intermediaries play such an important role in economies has to do with all of the following except:

• information costs.

• transaction costs.

• complexity of a lot of financial transactions.

• the composition of GDP.

Which of the following is not a role of a financial institution acting as a financial intermediary?

• Pooling the resources of small savers

• Formulating oversight regulations

• Providing ways to diversify risk

• Supplying liquidity

Financial institutions, acting as financial intermediaries, perform all of the following, except:

• provide ways to diversify risk.

• pooling resources of small savers.

• increase transactions costs.

• provide safekeeping and accounting services.

Financial intermediaries pool the resources of many small savers so that they can:

• charge fees to these small savers and earn substantial income.

• obtain the funds necessary to make loans to borrowers seeking large amounts.

• lower their transaction costs of obtaining funds.

• avoid paying any interest to obtain funds to lend.

If financial intermediaries did not have the ability to pool the resources of small savers:

• borrowers needing large amounts of money would find it more costly to obtain the funds.

• the economy would grow faster.

• people would likely save more.

• the risk associated with lending would decrease.

Financial intermediaries, through their ability to lower transaction costs:

• allow for people to be more self-sufficient.

• increase the amount of trading that occurs in an economy.

• take people away from their comparative advantage.

• reduce the number of financial transactions that occur.