Question

banks are financial intermediaries that have customer deposits as its primary asset and loans to borrowers as their primary liability. B. provide liquid assets to lenders and long-term financing to borrowers. C. are types of mutual funds. D. have customer deposits as its primary asset and that provide liquid assets to lenders. E. increase transaction costs to both borrowers and depositors.

Answer 1

By a process of elimination, the answer is:

B. provide liquid assets to lenders and long-term financing to borrowers.

Step-by-step explanation:

A. have customer deposits as its primary asset and loans to borrowers as their primary liability. ⇒ WRONG, IT IS THE OTHER WAY AROUND

C. are types of mutual funds. ⇒ WRONG, MUTUAL FUNDS ARE DIFFERENT THAN BANKS

D. have customer deposits as its primary asset and that provide liquid assets to lenders. ⇒ WRONG, DEPOSITS ARE LIABILITIES

E. increase transaction costs to both borrowers and depositors. ⇒ WRONG, BANKS DECREASE TANSACTION COSTS

Personally, I believe that a better description would be that banks have customer deposits as its primary liabilities and loans to borrowers as their primary assets.