Chapter 8 All Materials PDF

Chapter 8 All Materials PDF - ECON 330: Money and Banking...

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ECON 330: Money and Banking Fall 2007 Section 1: Tuesday and Thursday, 11:30AM-12:45PM, SMU 104 Section 2: Tuesday and Thursday, 5:00PM-6:15PM, SRO B Prof. J. Santos South Dakota State University Student Learning Objectives: Chapter 8: An Economic Analysis of Financial Structure [1] Recognize, but not state verbatim, the eight basic puzzles regarding how the &nancial system works. [2] De&ne the term transactions costs. [3] Explain how &nancial intermediaries take advantage of economies of scale and expertise in order to reduce transactions costs. [4] De&ne the term asymmetric information. [5] Identify and provide examples of adverse selection and moral hazard. [6] Di/erentiate between the lemons and principal-agent problems. [7] Explain how adverse selection and±or moral hazard can explain the eight puzzles regarding how the &nancial system works. [8] De&ne the term costly state veri&cation. [9] Describe how costly state veri&cation explains why the &nancial system is so heavily regulated. [10] De&ne the term free-rider problem. [11] Describe how the free-rider problem explains why the &nancial system is so heavily regulated. [12] Describe how &nancial intermediaries help reduce the principal-agent problem. [13] De&ne the term venture capital &rm. [14] Describe how moral hazard in²uences &nancial structure in debt markets. [15] Explain how net worth, restrictive covenants, and &nancial intermediation help to solve moral hazard problems in debt contracts. [16] De&ne the term incentive-compatible.
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Chapter 8: An Economic Analysis of Financial Structure Econ 330: Money and Banking all 2007 Fall 2007 Prof. Joseph Santos Department of Economics South Dakota State University This outline draws from Frederic Mishkin’s Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation.
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[1] Puzzles about Financial Structure throughout the World [1] Stocks are not the most important source of external financing for businesses. ] Issuing marketable debt and equity securities is not the primary way in [1] Puzzles about Financial Structure throughout the orld [2] Issuing marketable debt and equity securities is not the primary way in which businesses finance their operations. [3] Indirect finance is many times more important than direct finance. [4] Banks are the most important source of external funds used to finance World [2] Transactions Costs in Financial Markets [3] Information Costs in Financial Markets businesses. [5] The financial system is among the most heavily regulated sectors of the economy. [6] Only large, well-established corporations have easy access to securities [4] The Lemons Problem – Part 1 [5] The Lemons Problem – Part 2 [6] The Principal-Agent markets to finance their activities. [7] Collateral is a prevalent feature of debt contracts for both households and businesses.
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This note was uploaded on 04/09/2008 for the course ECON 330 taught by Professor Santos during the Spring '08 term at SD State.

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Chapter 8 All Materials PDF - ECON 330: Money and Banking...

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