ECONOMICS (CBSE/UGC NET)

ECONOMICS

ECONOMIC DEVELOPMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Every financial institution performs the following function:
A
It determines the level of interest rates.
B
It allows common stock to be traded.
C
It allows loans to be made.
D
It channels funds from lenders-savers to borrowers-spenders.
Explanation: 

Detailed explanation-1: -A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers).

Detailed explanation-2: -Bank. A bank is a financial intermediary that is licensed to accept deposits from the public and create credit products for borrowers. Banks are highly regulated by governments, due to the role they play in economic stability.

Detailed explanation-3: -A financial intermediary does this by borrowing funds from the lender-savers and then using these funds to make loans to borrower-spenders. For example, a bank might acquire funds by issuing a liability to the public (an asset for the public) in the form of savings deposits.

Detailed explanation-4: -The financial system provides three key services for savers and borrowers: risk-sharing, liquidity, and information. First, since individuals prefer stable returns on the assets they hold. Investors tend to hold a collection of assets (portfolio) which overall provides a relatively stable returns (diversification).

Detailed explanation-5: -#1 – Regulation of Monetary Supply. #2 – Banking Services. #3 – Insurance Services. #4 – Capital Formation. #5 – Investment Advice. #6 – Brokerage services. #7 – Pension Fund Services. #8 – Trust Fund Services. More items

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