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Which of the following usually seen as benefits in financial intermediation?
1) Interest rate fixing
2) Risk Pooling
3) Maturity TransformationIn the lecture, there are only three options aggregation, maturity transformation & diversification of risk. Does risk pooling refers to aggregation (it is the same thing, right?)
No. Risk pooling is the same as the diversification of risk. By investing via an intermediary, the money can be spread between many investments and so reduce the risk, whereas that would not be possible for an individual investing a relatively small amount by themselves.
It is aggregation that enable the intermediary to be able to do this because they have much more money to invest by aggregating/adding all the individual investors money together 🙂
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