Mortgage Loan Originator (MLO) Licensing Practice Test

Question: 1 / 605

What is disintermediation in financial terms?

Investing primarily in real estate

Withdrawal of funds from savings to invest in stocks and bonds

Disintermediation refers to the process where individuals or entities withdraw funds from traditional financial intermediaries (like banks) in order to directly invest in alternative financial markets, such as stocks and bonds. This shift often occurs when investors seek higher returns than what they can obtain from savings accounts or other traditional forms of investment facilitated by banks.

In this scenario, when funds are withdrawn from savings to invest in stocks or bonds, it illustrates disintermediation because it removes the intermediary role of banks in the investment process. Instead of allowing banks to hold and manage their deposits, investors take a more active role in managing their own investments, which often leads to a more direct connection to the financial markets. This shift can have implications for the banking system, as it affects the amount of capital that banks have available for lending and investment purposes.

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Transferring funds between banks

Using savings to pay off loans

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