What is the main purpose of financial intermediation?
Correct answer: A. To connect savers with borrowers
- A. To connect savers with borrowers
- B. To eliminate all investment risk
- C. To fix prices of all goods
- D. To replace government taxation
Explanation
Financial intermediaries collect funds from savers and channel them to individuals, firms, or governments that need finance. They reduce transaction costs and help manage risk, but they cannot eliminate investment risk.
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About Finance and Banking Basics
Business finance covers capital requirements, sources of funds, budgeting, cash flow, investment decisions and basic financial statements and ratios. Banking includes commercial bank functions, deposits, loans, credit creation, interest and the role of a central bank, including its monetary policy and regulatory functions.
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