Question

Frank and edith recently obtained a mortgage to pay for a new condominium. how did the funds for the mortgage transfer from saver to user in the financial system?

select answer from the options below
O directly, from depositors at the bank as savers to frank and edith as users.
O directly, from frank and edith as users, to depositors at the bank as savers.
O indirectly, from frank and edith as users to depositors at the bank as savers.
O indirectly, from depositors at the bank as savers to frank and edith as users.

Answer 1

The correct answer is "Indirectly, from depositors at the bank as savers to Frank and Edith as users." Banks act as financial intermediaries, collecting deposits from savers and lending them out to borrowers, like Frank and Edith, for their mortgage.

Step-by-step explanation:

The correct answer is option "Indirectly, from depositors at the bank as savers to Frank and Edith as users." When Frank and Edith obtained a mortgage, they engaged with the financial system in which the bank acts as an intermediary.

This process is depicted in Figure 17.3 as deposits from various savers (not just Frank and Edith) flow into the bank, and the bank subsequently uses those funds to provide loans to borrowers such as Frank and Edith for their condominium purchase. The funds for the mortgage did not move directly from the savers to the users; instead, they were channeled through the financial intermediary, which in this case is the bank.

The bank collects deposits from savers, promising them an expected rate of return and relative safety of their deposits. It then lends out a portion of these deposits to borrowers who are seeking funds for various purposes like buying a home, starting a business, etc. In due course, as the borrowers repay their loans with interest, the bank uses these repayments to provide interest payments to the original depositors, thereby completing the financial intermediation cycle.