Question

Which term is best defined as an institution that operates between a saver with financial assets to invest and an entity that will borrow those assets and pay a rate of return:

A. Financial intermediary
B. Hedge fund
C. Mutual fund
D. Credit union

Answer 1

A financial intermediary is an institution that operates between savers and borrowers. Banks are a type of financial intermediary that accept deposits from savers and provide loans to borrowers.

Step-by-step explanation:

An intermediary is one who stands between two other parties. A financial intermediary is an institution that operates between savers and borrowers. Banks are a type of financial intermediary that accept deposits from savers and provide loans to borrowers.

Banks are a financial intermediary—that is, an institution that operates between a saver who deposits money in a bank and a borrower who receives a loan from that bank. Financial intermediaries include other institutions in the financial market such as insurance companies and pension funds.

All the deposited funds mingle in one big pool, which the financial institution then lends. Banks as financial intermediaries can be seen in Figure 27.4, with deposits flowing into a bank and loans flowing out.