Explain why financial intermediaries are necessary to facilitate the movement of funds from savers to investors and how they provide benefits to both groups
What will be an ideal response?
There are some fundamental differences between savers and investors. Savers tend to have small sums that they wish to keep liquid. They are concerned about the risk of losing their funds. Investors are risk takers and generally need large sums for long-term projects. Financial intermediaries benefit both sides; for savers they provide reduced risk through diversification and their monitoring of investments. They also provide liquidity. For investors they eliminate the need to negotiate with a large number of savers and thus reduce the cost of negotiation.
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You notice that when interest rates increases, new residential housing prices tend to decrease. This observation indicates that
A) there must be false causality between interest rates and housing prices. B) higher interest rates must cause low housing prices. C) a scatter diagram between interest rates and housing prices will show a negative relationshi