Which of the following statements is TRUE?A.Secondary securities are securities that serve as collateral for primary securities. B.When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet. C.Financial institutions are not subject to economies of scale in the collection of information. D.The asset transformation function of an FI is to issue primary financial claims to corporations while purchasing secondary claims issued by households and other investors. E.FIs issue and sell their own securities that are more attractive to households than securities directly issued by corporations.
Question
Which of the following statements is TRUE?A.Secondary securities are securities that serve as collateral for primary securities. B.When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet. C.Financial institutions are not subject to economies of scale in the collection of information. D.The asset transformation function of an FI is to issue primary financial claims to corporations while purchasing secondary claims issued by households and other investors. E.FIs issue and sell their own securities that are more attractive to households than securities directly issued by corporations.
Solution
The statement E. FIs issue and sell their own securities that are more attractive to households than securities directly issued by corporations is TRUE.
Here's why:
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Financial institutions (FIs) often issue securities such as certificates of deposit, savings accounts, or insurance policies that are more attractive to households than securities directly issued by corporations.
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These securities are typically more attractive because they are designed to be more accessible and less risky. For example, a savings account at a bank is more accessible and less risky than investing directly in a corporation's stock or bonds.
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FIs can offer these attractive securities because they pool the funds from many households and use them to invest in a diversified portfolio of assets,
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