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Chapter 5: Q7DQ (page 471)

Explain the role of financial intermediaries in the flow of funds through the three-sector economy.

Short Answer

Expert verified

Financial intermediaries invest excess funds in the economy鈥檚 needed areas.

Step by step solution

01

Financial intermediaries 

Financial intermediaries refer to entities or middlemen engaged in providing financial assistance to their clients and guiding them to proceed with their financial transactions.

02

Role of financial intermediaries 

Financial intermediaries help flow surplusfunds towards the areas of an economy that seek funds. Such institutions indirectly investthe excess funds by channelizing from surplus units (i.e., Households) to deficit units (i.e., Businesses)

In addition, they also facilitate investors with liquidity and ensure that investors get proper information.

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