Banks serve as financial intermediaries by pooling together deposited funds and lending them to borrowers, reducing transaction costs and streamlining economic transactions. They act to connect savers with borrowers, thus facilitating the flow of financial capital and playing a key role in money creation.
Step-by-step explanation:
The question asks to select the sentences that correctly describe the role of intermediaries in the distribution process. Intermediaries in financial markets are entities that stand between two other parties. In this context, the role of banks as financial intermediaries is highlighted. Banks operate between savers, who deposit funds, and borrowers, who take out loans from the bank. Deposited funds are pooled together by the bank and then lent out to borrowers. This process is illustrated by the given figures, which show deposits flowing into the bank and loans flowing out. Banks seek to lend capital to creditworthy businesses that are likely to repay, thus acting as a crucial intermediary in the financial capital market and the payment system.
Banks also help to reduce transaction costs by eliminating the need for individuals to find lenders or borrowers themselves. They bring savers and borrowers together, making transactions safer and easier, and play a key role in the creation of money within the economy. Therefore, banks, as financial intermediaries, streamline the exchange of funds, support economic transactions, and facilitate the flow of financial capital.