Part 1Economists group commercial banks, savings and loan associations, credit unions, mutual funds, mutual savings banks, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries perform?Part 2
A. They provide a channel for linking those who want to save with those who want to invest. B. They are a source of slow and resistant financial innovation. C. These institutions can hurt the performance of the economy. D. They produce nothing of value and are therefore a drain on society's resources.

Question

Part 1Economists group commercial​ banks, savings and loan​ associations, credit​ unions, mutual​ funds, mutual savings​ banks, insurance​ companies, pension​ funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries​ perform?Part 2
A. They provide a channel for linking those who want to save with those who want to invest. B. They are a source of slow and resistant financial innovation. C. These institutions can hurt the performance of the economy. D. They produce nothing of value and are therefore a drain on​ society's resources.

BlackTom AI · Accepted Answer

The question asks about the function of financial intermediaries, grouping various institutions like banks, credit unions, mutual funds, and insurers under this heading. 
Option A: 'They provide a channel for linking those who want to save with those who want to invest.' This captures the core role of financial intermediaries: they pool savers' funds and channel them to borrowers or investment projects, improving liquidity and reducing transaction costs. 
Option B: 'They are a source of slow and resistant financial innovation.' While individuals and firms may criticize regulation and inertia in some contexts, financial intermediaries are also drivers of innovation (e.g., new financial products, payment systems, risk management tools). This statement wrongly characterizes them as inherently slow and resistant. 
Option C: 'These institutions can hurt the performance of the economy.' This is an overgeneralization. While there can be failures or crises related to financial intermediaries, their typical function is to support economic activity by matching savers and borrowers; they are not inherently detrimental to economic performance. 
Option D: 'They produce nothing of value and are therefore a drain on society's resources.' This is a misrepresentation. Financial intermediaries provide value by allocating capital efficiently, reducing information costs, and facilitating risk pooling, which adds value to the economy rather than draining resources. 
In summary, the strongest and most accurate statement is that financial intermediaries link savers with investors, facilitating capital allocation and liquidity, while the other options reflect common misconceptions or overly negative generalizations about their role.

Homework:Chapter 1 Homework

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