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Chapter 14: Q.12 (page 352)

Why do we call a bank a financial intermediary?

Short Answer

Expert verified

The bank is called financial intermediary because it connects borrowers to savers.

Step by step solution

01

Step 1  : Concept Introduction

Bank gathers money from the depositors and lends it out to the borrowers and thus acts as financial intermediary between the two parties.

Intermediary is known as a middleman in simple words who facilitates financial transaction between two parties.

02

Explanaton of solution 

An middleman is the one who stands among the two different events. Banks are called financial intermediary because it operates between a depositor who deposits their money in the bank and borrower who receives a loan from bank. In this, when a bank gathers money from the depositor and lends that money to the borrower as a loan, bank plays an intermediate role. Bank consolidates deposits and transfers them into loans. Thus, bank is called financial intermediary because it connects borrowers to savers.

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