1-72 Why Do Households Prefer to Use FIs as Intermediaries

question 66

Multiple Choice

1-72 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 above.

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Definitions:

Firm Value

The total value of a business, including its equity and debt components, considered in the context of valuation or acquisition.

Hedge

A financial strategy used to reduce or offset the risk of adverse price movements in an asset.

Price Risk

The risk of a change in the market price of securities affecting an investor's portfolio value.

Bushels

A unit of volume that is used in the United States for measuring agricultural commodities, such as grains.