True or False: A loan company is considered a financial intermediary.

True or False: A loan company is considered a financial intermediary.

• A. True
• B. False
• C. Only if it accepts deposits
• D. Depends on the loan agreements

Answer: (B)

A loan company is not categorized as a financial intermediary primarily because it does not typically engage in the function of channeling funds from savers or depositors to borrowers in the same way that banks or credit unions do. Financial intermediaries, like commercial banks, take deposits from individuals and businesses and use that money to make loans to other individuals and businesses, thereby facilitating the flow of funds within the economy. Loan companies, on the other hand, generally operate by providing loans directly without holding deposits. Instead, they may rely on capital from other sources such as investors or their own funds to finance loans. This distinction is crucial because the role of financial intermediaries includes managing deposits and ensuring liquidity, which does not apply to loan companies that function solely as lenders and do not accept deposits from the public. Thus, describing a loan company as a financial intermediary would be inaccurate.

A loan company is not categorized as a financial intermediary primarily because it does not typically engage in the function of channeling funds from savers or depositors to borrowers in the same way that banks or credit unions do. Financial intermediaries, like commercial banks, take deposits from individuals and businesses and use that money to make loans to other individuals and businesses, thereby facilitating the flow of funds within the economy.

Loan companies, on the other hand, generally operate by providing loans directly without holding deposits. Instead, they may rely on capital from other sources such as investors or their own funds to finance loans. This distinction is crucial because the role of financial intermediaries includes managing deposits and ensuring liquidity, which does not apply to loan companies that function solely as lenders and do not accept deposits from the public. Thus, describing a loan company as a financial intermediary would be inaccurate.