Which of the following statements is FALSE?

Question

BlackTom AI · Accepted Answer

First, consider the context: financial intermediaries are institutions like banks, mutual funds, or insurance companies that connect savers and borrowers and perform various roles in the financial system.

Option A: 'A financial intermediary benefits society by providing a mechanism for payments.' This is true, since intermediaries facilitate payment systems (checking, transfer services, payment rails) which support commerce and economic activity.

Option B: 'A financial intermediary reduces its risk exposure by pooling its assets.' This is generally correct: diversification and pooling risk across many loans or assets helps reduce individual exposure and smooths returns.

Option C: 'A financial intermediary acts as a lender of last resort.' This statement is false in most standard financial theory and practice. Lenders of last resort responsibilities typically belong to central banks or, in some cases, government-backed institutions during systemic crises. Private financial intermediaries do not routinely act as lenders of last resort to the broader economy; they manage liquidity and credit risk rather than guarantee a final liquidity backstop for everyone.

Option D: 'A financial intermediary specializes in the production of information.' This is true in many cases: intermediaries collect, process, and disseminate information (credit assessment, ratings, research) to reduce information asymmetry between savers and borrowers.

Option E: 'A financial intermediary may act as a broker to bring together funds deficit and funds surplus units.' This is a correct description of many intermediaries, who facilitate matching between those who have excess funds and those who need funds (e.g., brokers, investment banks, mutual funds).

In summary, every option except C aligns with well-established roles of financial intermediaries, whereas C misstates a core function and is thus incorrect.

FINS5530-Financial Institution Mgmt - T3 2025

Which of the following statements is FALSE?

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FINS5530-Financial Institution Mgmt - T3 2025

Which of the following statements is FALSE?

View Explanation

Log in for full answers

Similar Questions

Financial intermediaries are[Fill in the blank]

Part 1Which of the following is not an important financial intermediary in the​ economy? A. Commercial banks. B. Mutual funds. C. The Fed. D. Finance companies.

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Which of the following is NOT a major function of financial intermediaries?

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