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specialization, and in some cases these costs may outweigh the benefits of diversification. See A. Winton,
“Don’t Put All Your Eggs in One Basket? Diversification and Specialization in Lending,” Working Paper 9903, Department of Finance, University of Minnesota, August 1999 and G. L. DeLong, “Stockholder Gains from Diversifying Bank Mergers” Journal of Financial Economics 59 (2001), pp. 221–52. sau86198_ch01.qxd 4/21/02 8:52 PM Page 9 Chapter 1 Why Are Financial Intermediaries Special? 9 of contracts, such as long-term mortgage loans to households, while still raising funds
with short-term liability contracts. Further, while such mismatches can subject an FI to
interest rate risk (see Chapters 8 and 9), a large FI is better able to manage this risk
through its superior access to markets and instruments for hedging such as loan sales
and securitization (Chapters 27 and 28); futures (Chapter 24); swaps (Chapter 26); and
options, caps, floors, and collars (Chapter 25).
1. What are the three major risks to household savers from direct security purchases?
2. What are tw...
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09