Why Do Households Prefer to Use FIs as Intermediaries to Invest

question 101

Multiple Choice

Why do households prefer to use FIs as intermediaries to invest their surplus funds?

• A)Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information.
• B)To receive the benefits of diversification that households may not be able to achieve on their own.
• C)The FI has can benefit from combining funds and negotiating lower asset prices and transactions costs.
• D)The FI can provide insurance at relatively low cost that will protect funds under management.
• E)All of the options.

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Definitions:

Investment Component

A part of economic theory that represents funds allocated towards investment products or goods with the expectation of future returns or income.

Future Periods

Time frames or intervals that have yet to occur, often considered in planning and forecasting.

GDP Deflator

An economic metric that converts output measured at current prices into constant-dollar GDP, stripping out the effects of inflation.

Real GDP

Real Gross Domestic Product (GDP) measures the value of all finished goods and services produced within a country's borders in a specific period, adjusted for inflation.