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Financial markets promote economic efficiency by

A) channeling funds from investors to savers.

B) creating inflation.

C) channeling funds from savers to investors.

D) reducing investment. 

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Casey Durgan
Casey DurganLv2
9 May 2020

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Related questions

1. Individual investors (savers) revise their inflation expectations downward, expected inflation to be lower in the future. Which of the following is the most likely outcome in the financial markets?

A. The demand for funds will decrease and interest rates will fall
B. The demand for funds will increase and interest rates will rise.
C. The supply of funds will increase and interest rates will fall.

D. The supply of funds will decrease and interest rates will rise.

2. The primary functions of financial markets include:

A. Providing a vehicle by which savings can be made available to borrowers and other users of financial capital
B. Making up for the spending shortfall in the economy resulting from the fact that consumers do not spend all of their income
C. Both a and b

D. Neither a nor b

3. Martha expects inflation to increase over the next five years. As a result:

A. Martha will require lower returns on her bond investments
B. Martha will require higher returns on her bond investments
C. The returns Martha requires on her bond investments will not change.
D. It is impossible to tell what will happen to the returns required by Martha on her bond investments

How do financial institutions help with​ risk-bearing?
​(Select all the choices that​ apply.)
A. Insurance companies spread out risk by pooling premiums together from policyholders and pay the claims of those who have an​ accident, fire, medical need, or die. This process spreads the financial risk of these events out across a large pool of policyholders and investors in the insurance company.
B. Mutual funds and pension funds take your savings and spread them out among the stocks and bonds of many different​ companies, limiting your exposure to any one company.
C. Investment companies will deny any attempt by an investor to concentrate their investment in one single company as this would violate their role in spreading out risk.
D. Financial institutions not only assist with the​ risk-bearing of savers and​ investors but must also be concerned about their own​ risk, spreading their loans out among a variety of clientele.

How Finance Companies Facilitate the Flow of Funds

Carson Company has sometimes relied on debt financing from Fente Finance Company. Fente has been willing to lend money even when most commercial banks have not. Fente obtains funding from issuing commercial paper and focuses mostly on channeling the funds to borrowers.

a. Explain how finance companies are unique by comparing Fente’s net interest income, noninterest income, noninterest expenses, and loan losses to those of commercial banks.

b. Explain why Fente performs better than commercial banks in some periods.

c. Describe the flow of funds channeled through finance companies to firms such as Carson Company. What is the original source of the money that is channeled to firms or households that borrow from finance companies?

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