An investment dealer buys a Prairie Grid Energy bond from one client and sells it to another the same afternoon, earning the spread. In the surplus-to-deficit flow of funds, this is best described as:

Answer

Direct finance — the claim on Prairie Grid passed between investors

Options - A. Direct finance — the claim on Prairie Grid passed between investors - B. Financial intermediation — the dealer stood between the two - C. Underwriting — the dealer took the bond into its own inventory - D. Maturity transformation — the dealer held a long bond briefly Why - A. Correct — the claim is still on Prairie Grid and still the same bond. The dealer moved it; nothing about the claim was transformed. - B. Being in the middle of a trade is not intermediation. An intermediary issues its OWN claim to the saver and holds a DIFFERENT claim on the borrower. - C. Underwriting is a primary-market act — buying a NEW issue from the issuer for resale. A secondary trade between two investors is not an issue. - D. Maturity transformation is funding long loans with short deposits, an intermediary’s balance-sheet feat; a dealer holding a bond for an afternoon changes no maturity.

OpenStax, Introduction to Business (CC BY 4.0) §15.3 — shape only