- 20 Marks
MFS – JUL 2020 – L2 – Q6 – Financial Intermediation and Transformation Functions
Explain financial intermediation as a business and how transformation functions bridge gaps between lenders and borrowers.
Question
Financial Intermediaries can bridge the gap between borrowers and lenders and reconcile their often incompatible needs and objectives. Banks bridge this gap by performing the transformation functions: Size transformation, Maturity transformation and Risk transformation.
a. Explain financial intermediation as a business activity. (5marks)
b. Explain how Size transformation, Maturity transformation, and Risk transformation bridge the gap between lenders and borrowers (15marks)
[Total Marks: 20]
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