Financial intermediaries such as banks that stand between sa

Financial intermediaries, such as banks, that “stand between” savers and investors serve an important purpose by:

having a comparative advantage to evaluate the quality of borrowers at a much higher cost and with lesser outcomes than individual savers could on their own.

allowing small savers to determine which borrowers are likely to use the funds they receive most productively.

helping savers eliminate the need to gather information about potential borrowers and by directing their saving toward higher-return, more productive investments.

limiting a borrower\'s access to credit.

which is correct?

Solution

The 3rd option is correct.

Banks and non-banking financial intermediaries play an extremely important role by linking savings with investments, by channelizing the savings from savers toward borrowers\' investment needs, so that the savers don\'t have to gather information about potential borrowers directly.