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hello Sir
please explain the following lines ,extracted from past paper answer, regarding financial intermediaries
financial intermediaries will assume the risk of loss on
short-term funds borrowed by business organisations, either individually or by pooling risks between financial intermediaries.
This aspect of the role of financial intermediaries is referred to as risk transformation.
thanks in anticipationAll it means is that if a company were to lend directly to a borrower, then they are at risk of not being paid back.
If instead they deposit with a financial intermediary (e.g. a bank) then the intermediary pools it with other deposits and lends the money to lots of borrowers – if any of the borrowers to not repay their loan then it does not hit the company that deposited their money.(And remember that this point was only 1 mark in the exam 🙂 )
thank you so much Sir, its clear but really awful that such an easy point (u made it by explaining )carries only one mark………… 🙁 out of 4 🙂
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