'Intermediaries,by managing the deposits they receive,are able to make long-term loans while satisfying savers' preferences for liquid claims.' This statement is referring to which important attribute of financial intermediation?
A) Asset transformation
B) Maturity transformation
C) Credit risk transformation
D) Denomination transformation

Question

Quizplus · Accepted Answer

Maturity transformation is the process through which financial intermediaries, such as banks and other financial institutions, channel deposits into longer-term loans and investments. This allows them to serve the needs of savers who typically prefer liquid investments, while also meeting the demand for longer-term financing from borrowers. In other words, intermediaries transform short-term, highly liquid claims into longer-term, less liquid assets. This process involves assuming some level of risk, since it requires that intermediaries accurately forecast the demand for credit and manage potential liquidity and interest rate risks.

'Intermediaries,by Managing the Deposits They Receive,are Able to Make Long-Term