What are the economic functions of depository institutions?
What will be an ideal response?
Depository institutions provide four economic services. First, they create liquidity, that is, bank deposits are highly liquid so that they are easily convertible into money. Second, they minimize cost of obtaining funds because borrowing from one bank is cheaper than borrowing from a variety of lenders. Third, they minimize cost of monitoring borrowers because depository institutions specialize in monitoring borrowers. Fourth, they pool risk by making loans to many borrowers.
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Public Broadcasting, in its fund drives, often arranges for a corporation to match donations made by its employees. This is likely to ________ the free-rider problem and lead to a ________ level of contribution to the public good.
A. reduce; smaller B. reduce; larger C. increase; smaller D. increase; larger
Refer to Scenario 7.8 below to answer the question(s) that follow. SCENARIO 7.8: A swimming pool cleaning company has the following production possibilities. With one, two, three, and four workers, the company can clean 5, 12, 17, and 20 pools per day, respectively. Refer to Scenario 7.8. Diminishing returns to labor set in with the ________ worker.
A. first B. second C. third D. fourth