Chapter 5R, Problem 5MCQ

To determine

The correct option that defines the financial intermediary that resells the shares of the stock portfolio.

Answer to Problem 5MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

There are various financial intermediaries such as banks, mutual funds, insurance companies, etc. Mutual funds are the financial intermediaries that create a portfolio of stocks to resell the shares. Therefore, option a is correct.

Explanation for incorrect options:

b.

Pension fund is also a financial intermediary which invests savings into stocks so that income distribution can be done at the time of retirement. Therefore, option b is incorrect.

c.

Loan backed by securities does not create a portfolio of stocks to resell the shares. Therefore, option c is incorrect.

d.

Bond broker deals in bond or debt instrument instead of reselling shares. Therefore, option d is incorrect.

e.

Depository institutions refer to the institutions such as banks that allow deposits from investors for saving purposes. Therefore, option e is incorrect.

Economics Concept Introduction

Financial system: Financial system refers to the system that facilitates the borrower to borrow capital and the investors to invest their savings in the financial market.