Banks typically pay low interest rates on deposits and other savings accounts. Banks use the funds from deposits to make car loans and mortgage loans on which they charge much higher rates than they pay on chequing accounts.
Why do people put their funds in deposits rather than earning a higher interest rate by lending directly to people who want to buy houses or​ cars?
a. Direct lending entails high transactions costs for individual​ savers, such as the legal fees needed to draw up a contract with a borrower.
b. Individual savers would face significant information costs as they seek to determine the creditworthiness of borrowers and monitor how borrowers use the acquired funds.
c. Direct lending is taxed while indirect lending is tax exempt.
d. A and B only.
e. All of the above.