Chapter 22, Problem 5MCQ

To determine

The correct option when a financial intermediary provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers.

Answer to Problem 5MCQ

From the available options, the correct option is there is a bank.

Explanation of Solution

When a financial institution provides liquid financial assets as deposits to lenders and then uses their deposits to further finance the illiquid investment of borrowers, then this institution would be a bank. This is because a bank is an institution that accepts deposits of people and then use these deposits to further finance the borrowers who need loan or credit. It cannot be a pension fund, life insurance company, corporation, or mutual fund because they do not take deposits to use that money for further financing services.

Therefore, the correct option is b (bank) and all other options are incorrect.

Economics Concept Introduction

Introduction: Financial system refers to a set of financial institutions that offers the exchange of funds, insurance, and deposits such as banks, insurance companies, etc.