Question

When is intermediation in financial

institutions most likely to occur?
a. When demand and supply of funds are
both decreasing
b. When demand and supply of funds are
both increasing
c. When supply of funds is decreasing, and
the demand is increasing
d. When supply of funds is increasing, and
the demand is decreasing

Answer 1

Intermediation is most likely when fund supply decreases and demand increases, as financial institutions work to balance these forces. Additionally, both an increase in demand and an increase in supply can lead to more loans being made and received, while only a rise in supply is likely to reduce interest rates.

Step-by-step explanation:

Intermediation in financial institutions is most likely to occur when the supply of funds is decreasing, and the demand for funds is increasing.

This scenario creates pressure for financial institutions to intervene to balance the market by facilitating the flow of funds from savers to borrowers.

In terms of interest rates, a rise in supply can lead to a decrease in interest rates, while a rise in demand could increase interest rates.

Moreover, an increase in the quantity of loans made and received in the financial market is most likely to occur with either a rise in demand or a rise in supply of funds.