What was the GATT? What will be an ideal ...

[melly21297]

What was the GATT?
 
  What will be an ideal response?

Question 2

How do depository institutions create liquidity, pool risks, and lower the cost of borrowing?
 
  What will be an ideal response?

[jaymee143]

Answer to Question 1

The GATT or General Agreement on Tariffs and Trade was an international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade.

Answer to Question 2

Liquidity is the property of being easily convertible into a means of payment without loss in value. Depository institutions create liquidity when they offer deposits that can be withdrawn as money at short (or no) notice and then use these deposits to make long-term loans.
Depository institutions pool risk because they use funds obtained from many depositors to make loans to many borrowers. As a result, if a borrower defaults, no one depositor bears the entire loss because the loss is spread over all depositors. By spreading the risk, depository institutions are pooling risk.
Depository institutions lower the cost of borrowing because they specialize in borrowing. For instance, a firm that wants to borrow a large sum of money need only visit one depository institution to arrange such a loan. In the absence of depository institutions, the firm would need to undertake many transactions with many lenders, which would be a costly process.