Final answer:
Depository institutions serve as intermediaries by accepting deposits and lending funds, with commercial banks being a prime example. They play a vital role in the financial system, offering various accounts and reducing transaction costs, while providing insurance through the FDIC. The correct option is D.
Step-by-step explanation:
A financial institution such as a commercial bank that serves as an intermediary between those who need money and those with excess funds is a depository institution. These institutions receive money deposits from the public and use those deposits to make loans.
Banks fit this description perfectly, pooling the deposits and then lending them out to individuals, businesses, and other entities. Unlike other financial intermediaries like insurance companies and pension funds, banks are unique in that they accept deposits and offer the public savings and checking accounts, amongst other services.
Through their role, banks help in reducing transaction costs and increase the efficiency of the payment system within an economy. They are crucial in facilitating the exchange of goods and services for money or other financial assets and also provide security under the Federal Deposit Insurance Corporation (FDIC).