Which of the following is true of banks?

A) Banks reduce the opportunity cost of holding idle cash.
B) Banks act as intermediaries between the government and private investors.
C) Banks can reduce risk by lending to rich borrowers.
D) Banks reduce the transaction costs of borrowing and lending money.
E) Banks can reduce risks by extending more loans.

Banks reduce transaction costs by pooling individual savings and lending to borrowers in larger amounts, thus lowering the cost of borrowing and making it more feasible for individuals and businesses to obtain loans. This, in turn, reduces the opportunity cost of holding idle cash for individuals and businesses. Banks can also diversify risk through lending to a variety of borrowers with different credit profiles and projects, reducing the overall risk of their loan portfolio. However, extending more loans does not necessarily reduce risk and can actually increase risk if the loans are extended to borrowers who are unlikely to repay them. Therefore, option E is not correct. Option B is not true as banks act as intermediaries between savers and borrowers, not the government and private investors. Option C is also not true as lending to rich borrowers does not necessarily reduce risk as they may default on their loans just as easily as less well-off borrowers.