Homework #3 - Robert Garza ECON 3131 Homework#3 Financial...

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Robert Garza ECON: 3131 Homework #3 Financial intermediary - Indirect finance through the services of an institutional “middleman” that channels funds from savers to those who ultimately make capital investments. Asymmetric information - Information possessed by one party to a financial transaction but not by the other party. Adverse Selection - The problem that those who desire to issue financial instruments are most likely to use the funds they receive for unworthy, high-risk projects. Moral hazard - The possibility that a borrower may engage in more risky behavior after a loan has been made. Economies of scale - The reduction in the average cost of fund management that can be achieved by pooling savings together and spreading management costs across many people. Investment bank - Institutions that specialize in marketing and underwriting sales of firm ownership shares. Pension fund - Institutions that specialize in managing funds that individuals save for retirement.
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