1. borrow funds from savers and lend them to investors, thereby facilitating the investment process.
2. borrow funds by selling debt instruments whose principal and interest are fixed in nominal dollars and lend them by acquiring equity shares in firms.
3. borrow funds by selling long-term bonds and lend them by purchasing short-term debt instruments.
4. do any or all of the above.
Choose the correct option.
The correct option is 4. Financial intermediaries do what their name implies---they "intermediate" between borrowers and lenders, and, hence, between those individuals, firms and institutions that organize the expansion of the economy's capital stock and those individuals who simply wish to postpone consumption from the present to the future.
In the process of intermediating between savers and investors, financial intermediaries also intermediate between people who want to hold their wealth in one form (for example, short-term or low risk) and those that want to hold their wealth in another form (for example, long-term or high risk). Financial intermediaries are "middlemen" in financial markets just like the local fruit stand operator is a middleman between farmers and consumers.