Explain how economic transactions between household savers

Reference no: EM13502259

1. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial institutions.

2.Identify and explain the two functions FIs perform that would enable the smooth flow of funds from household savers to corporate users.

3.In what sense are the financial claims of FIs considered secondary securities, while the financial claims of commercial corporations are considered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?

4. Explain how financial institutions act as delegated monitors. What secondary benefits often accrue to the entire financial system because of this monitoring process?

5.What are agency costs? How do FIs solve the information and related agency costs when household savers invest directly in securities issued by corporations?

6.How can financial institutions invest in high-risk assets with funding provided by low-risk liabilities from savers?

7.What is maturity intermediation? What are some of the ways in which the risks of maturity intermediation are managed by financial intermediaries?

8.How do depository institutions such as commercial banks assist in the implementation and transmission of monetary policy?

9.What is negative externality? In what ways do the existence of negative externalities justify the extra regulatory attention received by financial institutions?

10. If financial markets operated perfectly and costlessly, would there be a need for financial institutions?

Reference no: EM13502259

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