The correct option is Transmitting authentication and authorization assertions between identity providers and service providers.

SAML is an XML based standard that defines how an identity provider sends signed assertions about a user to a service provider so the service provider can make authentication and authorization decisions and enable single sign on across domains. The protocol specifies the format of the assertions and the exchange patterns used by browsers and services to carry those assertions so credentials do not need to be shared with the service provider.

Cloud Identity Aware Proxy is incorrect because that name refers to a specific Google Cloud product that controls access to web applications and resources and not to the general protocol function of exchanging identity assertions.

Holding user passwords in a single directory is incorrect because SAML does not prescribe where credentials are stored. An identity provider may authenticate against a directory but SAML itself transmits assertions rather than acting as a password store.

Encrypting authentication traffic between clients and servers is incorrect because transport layer security such as TLS handles encryption of client server traffic. SAML can sign and encrypt assertions as part of message security but its primary role is to assert identity and authorization information between providers.

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