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

Which of the following statements about financial intermediaries and disintermediation is correct?

Disintermediation occurs when borrowers raise funds directly from investors in the markets, for example by issuing bonds or commercial paper, instead of going through banks. It is not maturity transformation, bank mergers or central bank lending.

  1. ADisintermediation occurs when borrowers raise finance directly from investors in the capital markets, bypassing banksCorrect
  2. BDisintermediation occurs when banks merge with other intermediaries to create larger institutions
  3. CDisintermediation is the process by which banks convert short-term deposits into long-term loans
  4. DDisintermediation means that a central bank takes over lending to businesses from commercial banks

Explanation

Disintermediation is the bypassing of intermediaries, such as a large company issuing bonds or commercial paper directly to investors instead of borrowing from a bank. Mergers are consolidation, conversion of maturities is maturity transformation, and central bank lending is unrelated to the term.

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