Abstract
Repid growth of financial institutions in recent years has resulted in a need to provide a conceptual framework for explaining their portfolio behaviour. By and large, literature on the theory of financial intermediation has concentrated on either the asset side or the liability side of the balance sheet. In this study, an attempt is made to explain the behaviour of financial intermediaries by explicitly considering the dependence between securities bought and securities sold in terms of the portfolio theory using a preference function approach. The model presented in this article will provide a framework for further research.
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