Question

Banks providing depositors with checking accounts that enable them to pay their bills easily is known as ________ . Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of _________ . Through __________ and asset transformation activities, a financial intermediary reduces the risks of its customers. The presence of _________in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. ( fill the blanks from the following: asymmetric information; free-riding; market power; liquidity services; economies of scale; risk-sharing;   )

Answer 1

Banks providing depositors with checking accounts that enable them to pay their bills easily is known as liquidity services . Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of economies of scale . Through risk sharing and asset transformation activities, a financial intermediary reduces the risks of its customers. The presence of asymmetric information in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.