1. Financial intermediaries are necessary because:

a. without financial intermediation too much saving and borrowing would occur in the economy.

b. in many cases, people who want to save don't interact directly with people who want to borrow.

c. besides depositing money into a financial intermediary such as a bank, there is no other way to save money.

d. prospective borrowers worry about providing financial information directly to people with money to lend.

2. Banks attract savings from many depositors by:

a. offering loans at low interest rates.

b. advertising their security measures.

c. providing nudges that encourage saving.

d. paying interest on deposits.

3. How do banks earn a profit?

a. By investing the money they receive from depositors with other banks.

b. By charging a higher interest rate on the money they lend than they pay on the money they receive.

c. By charging fees for checking accounts and closing costs on loans.

d. By charging a lower interest rate on the money they lend than they pay on the money they receive.

4. Which of the following is one of the services that banks provide?

a. Banks lend money to the government.

b. Banks link savers and borrowers.

c. Banks target key industries for loans and investment.

d. Banks issue currency.

5. Why don't entrepreneuers borrow directly from large groups of savers rather than borrowing from a bank?

a. Because such direct borrowing is not allowed under banking law

b. Because banks have more money to lend than do individual savers

c. Because it would be time consuming and costly to coordinate such an effort

d. Because fees and interest rates charged by banks are lower

6. By taking in deposits from many savers and lending money to many borrowers, banks:

a. concentrate the risk, so that if a borrower fails to pay back a loan only a few savers go bankrupt.

b. redistribute wealth, taking funds from savers with money to spare and giving it to those most in need.

c. spread the risk, so no one lender is in danger of going bankrupt if a borrower fails to pay back a loan.

d. redistribute wealth, taking funds from households and other savers and giving it to wealthy corporations.

7. The money that banks keep on hand is called:

a. reserves.

b. deposits.

c. bonds.

d. interest.