Question

Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because
I. intermediaries are better diversified than most individuals
II. intermediaries can exploit economies of scale in investing that individual investors cannot
III. intermediated investments usually offer higher rates of return than direct capital market claims

Answer 1

Answer:

The correct answer is I and II.

Explanation:

Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because of several reasons.  

The financial intermediaries such as commercial banks, mutual funds, insurance companies, pension funds, etc. are more diversified than individual investors. They provide a number of options for borrowing and lending.  

These intermediaries work on a larger scale than an individual investor. They are thus able to reap the advantages of economies of scale which an individual investor cannot.