Unformatted text preview: and borrowers
transformation’). Because of V search of their operations, financial intermediaries are able to diversify credit
B) I, III, IV, the
risk more effectively I, III, IV, VI individual investors and the ready availability of deposits with, and loans from,
C) than most
intermediaries should result in lower search costs for lenders and borrowers. In summary, I, III, V and VI are
D) I, III, V, VI
benefits of financial intermediation relative to direct finance. Direct borrowing may increase a company’s market
profile and the need for liability management increases the cost of intermediation, so II and IV are not benefits of
intermediation. See page 20.
The domestic economy can be divided into four sectors: business corporations, financial corporations,
government and household sectors. The flow of funds between sectors varies but some generalisations are
possible. In general, which of theusually a deficit sector and the household sector is a surplus sector
the business sector is following is correct?
B) the business and household sectors are usually deficit sectors
Feedback: The business sector usually has a deficit each year as funds are raised to finance investment in
C) the financial corporations and government sectors are usually surplus sectors
additional assets and the household sector usually has a surplus. The financial corporations sector is often
D) tends to have a small deficit sectors are usually deficit sectors
close to balanced or the household and government whilethe government sector may have either a surplus or a
deficit depending largely on the commonwealth government’s budgetary position. Consequently, A is but B, C
and D are all . See page 31.
Wholesale market transactions are most accurately described as:
A) transactions where non-bank institutions deposit surplus funds with banks
B) direct transactions between institutional investors and borrowers
C) direct transactions between large corporations and merchant banks
Feedback: The classification of financial transactions as either ‘wholesale’ or ‘retail’ is base...
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