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Which of the following acts as a vehicle for mobilising and transferring the economy's surplus to the ultimate users ?
Government policy
Financial institutions
Man power
Commercial centers
None of the above
Financial institutions
Financial institutions act as intermediaries in the financial system by collecting savings from surplus units (savers) and channeling them to deficit units (investors/borrowers). This process, known as financial intermediation, ensures the efficient allocation of capital, which is essential for economic growth and industrial development.
Financial institutions act as intermediaries in the financial system by collecting savings from surplus units (savers) and channeling them to deficit units (investors/borrowers). This process, known as financial intermediation, ensures the efficient allocation of capital, which is essential for economic growth and industrial development.
The Reserve Bank of India (RBI) was established on April 1, 1935, under the Reserve Bank of India Act, 1934, acting as the primary regulator for these financial institutions in the Indian economy.
Financial institutions bridge the gap between savers and investors to reduce transaction costs and information asymmetry.
The Indian financial system comprises banks, non-banking financial companies (NBFCs), mutual funds, insurance companies, and pension funds.
Capital formation is significantly accelerated when surplus funds are converted into productive investments through these intermediaries.
Commercial banks function as the most significant financial intermediaries by mobilizing public deposits and extending credit for productive activities.
Government policy influences the direction of capital flow but does not itself function as the vehicle for physical fund transfer.
Manpower refers to human capital, which is an input for production rather than a financial conduit for transferring surplus.
Commercial centers are geographic hubs for trade and do not possess the structural capacity to manage financial intermediation independently.
B is correct тАФ Financial institutions serve as the vital link between savers and borrowers to facilitate the transfer of surplus funds.
When studying the financial system, link this concept to the 'Monetary Policy' chapter, as the RBI uses the repo rate to influence how financial institutions transfer these surplus funds across the economy.
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