Corporate Finance Practice Test

Disintermediation refers to the long-term trend of moving away from traditional banks and financial institutions to direct market mechanisms for obtaining capital. This shift allows borrowers to source funds directly from investors, such as through issuing bonds or equity rather than relying on banks to facilitate these transactions.

This trend has gained traction for various reasons, including advancements in technology that have made it easier for companies to access capital markets, as well as a desire among investors to find higher returns outside of traditional banking products. As a result, companies may prefer to raise funds directly from market participants rather than paying higher interest rates to banks.

The other options focus on activities more associated with traditional banking functions, such as increasing deposits, facilitating lending, or acquiring banks, which do not capture the essence of disintermediation's shift towards market-based financing.