When a Bank Takes Savings from Many Small Savers and Lends

question 23

Multiple Choice

When a bank takes savings from many small savers and lends it to many borrowers, the bank:

• A) decreases the risk to savers through diversification.
• B) increases the risk to borrowers through high transaction costs.
• C) decreases the risk to savers through economies of scale.
• D) decreases the return to savers and increases the cost to borrowers.

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Definitions:

Purchase Amount

The total price paid for goods or services, including taxes and any additional charges.

Financial Statement

A Financial Statement is a formal record of the financial activities and position of a business, person, or other entity, including income statements, balance sheets, and statements of cash flows.

Normal Balance

The usual balance of an account in the accounting system, where asset and expense accounts typically have a debit balance, and liability, equity, and revenue accounts have a credit balance.

Discount Period

The timeframe within which a buyer can take advantage of a discount for paying an invoice early.