Which of the following is NOT an economic benefit of depository institutions?
A) They borrow long and lend short.
B) They create liquidity.
C) They pool risk.
D) They reduce the cost of monitoring borrowers.

Question

Quizplus · Accepted Answer

Depository institutions typically borrow short (accepting short-term deposits) and lend long (offering long-term loans), not the other way around. This mismatch is part of their function to transform short-term liabilities into long-term assets, which is contrary to what option A suggests. Options B, C, and D correctly describe economic benefits of depository institutions.

Which of the Following Is NOT an Economic Benefit of Depository