Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.
Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.)
Reference: Chapter 11 and/or Chapter 1
Banks borrow money from their younger customers and lend it to their older customers.
Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets.
Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.
Expert Solution
Step 1
The banks act as intermediaries between the people with the money and those that need money. Maturity intermediation refers to the service where the banks take short-term deposits but give out long-term loans. It leads to the bank is in a vulnerable position.
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