Question

Which of the following is NOT a reason for the specialness of financial intermediaries?

Select one:

a. Lower average information costs.

b. Lower price risk and superior liquidity attributes of financial claims to household savers.

c. No agency costs.

d. Lower average transaction costs.

e. All of the above.

Answer 1

Financial intermediary are individuals or company which act as intermediary between two parties which are part of financial transactions. Financial intermediary includes merchant bank, investment bankers, mutual funds and others.

The special ness of financial intermediaries are that it offers lower average information costs and the price risk is lower. They offer higher liquidity and also save the parties from credit loss. The average transaction costs with financial intermediaries is lower. However, they also involve agency costs. Thus, no agency costs is not reason for specialness of financial intermediaries.

Thus, option (a), (b), (d) and (e) is incorrect and option (c) is correct