Which of the following best defines a financial intermediary?

• A. A company that prepares and analyzes financial statements for internal management use.
• B. An entity that acts as a middleman between savers and borrowers, facilitating the flow of funds in the financial system.
• C. An individual who audits the financial records of a business.
• D. A government agency responsible for setting accounting standards.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the term 'financial intermediary' by breaking it down. A financial intermediary is an entity that facilitates the flow of funds between savers (those who have excess funds) and borrowers (those who need funds).
2. Step 2: Compare the options provided in the question. Analyze each option to determine which one aligns with the definition of a financial intermediary.
3. Step 3: Option A describes a company that prepares and analyzes financial statements for internal management use. This is related to internal accounting processes, not the role of a financial intermediary.
4. Step 4: Option C refers to an individual who audits financial records. Auditing is a separate function focused on verifying the accuracy of financial statements, not facilitating fund flow.
5. Step 5: Option D mentions a government agency responsible for setting accounting standards. This is related to regulatory functions, not the intermediary role. The correct answer is the option that defines an entity acting as a middleman between savers and borrowers.