Question

what is asset transformer

asset transformer Not asset transformation：)

Answer 1

sol.) The financial intermediaries such as banks, mutual saving banks , saving banks, credit unions are the few asset transformers working in the financial markets.

Banks takes deposits from general public and pooled the deposits and then provides loans to the different borrowers such as general public, corporation houses, companies and saving societies.

This process is called the asset transformation as the banks converts their short term liabilities into long term assets by providing the public deposits into the form of loans and mortgages to the borrowers.

Banks receives a definite interest amount on the loans from the borrowers and pays account holder the interest on their deposits. The bank generally charges a higher rate of interest from the borrowers then what it pays to the Account holders such that difference between lending rate and borrowing rate is the profit or surplus earned by the bank by issuing the loans to the borrowers.

Similarly, other financial institutions and intermediaries undertakes the similar operations to earn profit through borrowing funds from the depositers and lends it to others.