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ACCA Applied Skills · Financial Management · The nature and role of financial markets and institutions

Which of the following best describes the role of a financial intermediary in the financial system?

A financial intermediary channels funds from surplus units (savers) to deficit units (borrowers) by taking deposits and lending on in its own name. It differs from a broker, which only matches parties, and from a central bank, which sets policy rates.

  1. ABringing together surplus units and deficit units by taking deposits and lending on to borrowers, in its own nameCorrect
  2. BIssuing shares on behalf of companies and taking no risk on the securities placed
  3. CSetting interest rates for the whole economy through its lending policy
  4. DActing only as a broker that matches buyers and sellers without holding any claims

Explanation

A financial intermediary stands between savers and borrowers, taking funds from savers in its own name and lending them on to borrowers. A broker only matches parties and does not hold claims. Setting economy-wide interest rates is a central bank function, not an intermediary function.

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