Depository institutions are good at minimizing
A) liquidity.
B) risky borrowers.
C) the costs of monitoring borrowers.
D) all of the above

Question

Quizplus · Accepted Answer

Depository institutions are good at minimizing the costs of monitoring borrowers through their experience, expertise, and economies of scale. They are also able to screen potential borrowers to reduce the likelihood of lending to risky borrowers. However, they aim to maintain liquidity as it is crucial to their business operations. Therefore, option A is incorrect as depository institutions try to maintain liquidity. Option B is partly correct, but depository institutions do not completely avoid risky borrowers, rather they try to minimize the risk through screening and monitoring. Option C is the best choice as it accurately describes the strengths of depository institutions.

Depository Institutions Are Good at Minimizing