Chapter 8 Outline

Chapter 8 Outline - Click to edit Master subtitle style...

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Unformatted text preview: Click to edit Master subtitle style 5/12/09 Department of Department of Chapter 8: An Economic Analysis of Financial Structure Econ 330: Money and Banking Fall 2007 Prof. Joseph Santos This outline draws from Frederic Mishkins Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation. 5/12/09 Department of Department of [1] Puzzles about Financial Structure throughout the World [1] Stocks are not the most important source of external financing for businesses. [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 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 markets to finance their activities. [7] Collateral is a prevalent feature of debt contracts for both households and businesses. [8] Debt contracts typically are extremely complicated legal documents that place substantial restrictions on the behavior of the borrower. [1] Puzzles about Financial Structure throughout the World [2] Transactions Costs in Financial Markets [3] Information Costs in Financial Markets [4] The Lemons Problem Part 1 [5] The Lemons Problem Part 2 [6] The Principal-Agent Problem Part 1 [7] The Principal-Agent Problem Part 2 [8] Conflicts of Interest This outline draws from Frederic Mishkins Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation. 5/12/09 Department of Department of [2] Transaction Costs in Financial Markets How transactions costs influence financial structure High transactions costs in financial markets and, consequentially, the high cost of portfolio diversification through direct finance, cause most savers to choose an alternative saving vehicle/channel. How financial intermediaries reduce transactions costs Economies of scale Expertise An important outcome of a financial intermediarys low transaction costs is its ability to provide its customers with liquidity services....
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Chapter 8 Outline - Click to edit Master subtitle style...

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