Lecture 14

Lecture 14 - Key Aspects of the Financial System 1....

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Unformatted text preview: Key Aspects of the Financial System 1. Financial intermediaries are the most important source of external funds to firms beCause they reduce transactions costs and because they reduce adverse selection and moral hazard problems. 2. The stock market is a less f ' important source of external funds to firms than is the bond market because of moral hazard problems with equity contracts. 3. Debt contracts —— bonds and loans — often require collateral or restrictive covenants because of moral hazard problems. ...
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Lecture 14 - Key Aspects of the Financial System 1....

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