ACCA FM · Chapter 2 · Question 4 of 10
Banks accept short-term deposits from savers and use the funds to make long-term loans to businesses. Which function of a financial intermediary does this describe?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Maturity transformation
Explanation
Maturity transformation occurs when an intermediary bridges the gap between lenders who want to lend for short periods and borrowers who need long-term funds. Aggregation (pooling) refers to combining many small deposits into large loans, and risk transformation refers to spreading the risk of default across a large portfolio of loans.
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