Question

1) Financial systems have efficiency when

1. borrowers are able to finance at the highest possible cost.

2. surplus spending units are able to receive the lowest return on their savings.

3. transaction and intermediation costs are low.

4. lenders have a limited choice of financial investments.

Answer 1

Option (C) is correct

Financial systems have efficiency when transaction and intermediation costs are low. The very purpose of the efficient financial system is to provide or to make available, the finance to the borrowers at lowest possible cost.

Option (A) is incorrect because of the explanation given in point (c) above.

Option (B) is incorrect in an efficient financial system surplus spending units are able to receive the highest return on their savings.

Option (D) is incorrect as in an efficient financial system lenders have unlimited choice of financial investments.