Unformatted text preview: swer lies in the ability of FIs to better resolve the three costs
facing a saver who chooses to invest directly in corporate securities. Information Costs Agency Costs
Costs relating to the
risk that the owners
and managers of firms
that receive savers’
funds will take actions
with those funds contrary to the best interests of the savers. Delegated Monitor
An economic agent appointed to act on behalf of smaller agents
in collecting information and/or investing
funds on their behalf. One problem faced by an average saver directly investing in a commercial firm’s financial claims is the high cost of information collection. Household savers must monitor the actions of firms in a timely and complete fashion after purchasing securities.
Failure to monitor exposes investors to agency costs, that is, the risk that the firm’s
owners or managers will take actions with the saver’s money contrary to the promises
contained in the covenants of its securities contracts. Monitoring costs are part of overall agency costs...
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09