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Unformatted text preview: How do these functions
benefit the economy? Second, we investigate what makes some FIs more special than
others. Third, we look at how unique and long-lived the special functions of FIs
really are. 1 Some public utility suppliers such as gas, electric, telephone, and water companies are also singled out for
regulation because of the special nature of their services and the costs imposed on society if they fail. sau86198_ch01.qxd 4 Part One 4/21/02 8:52 PM Page 4 Introduction Financial Intermediaries’ Specialness Covenant
Legal clauses in a
bond contract that
require the issuer of
bonds to take or avoid
certain actions. Liquidity
The ease of converting
an asset into cash.
The risk that the sale
price of an asset will
be lower than the
purchase price of
that asset. To understand the important economic function of FIs, imagine a simple world in
which FIs do not exist. In such a world, households generating excess savings by consuming less than they earn would have the basic choice: They could hold cash as an asset or invest in the securities issued by corporations. In gener...
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09