What are information costs associated with financial assets

Reference no: EM131313477

The following is an excerpt taken from a November 30, 2007, speech entitled "Innovation, Information, and Regulation in Financial Markets" by Federal Reserve Governor Randall S. Kroszner (www. federalreserve.gov/newsevents/speech/kroszner20071130a.htm):

Innovations in financial markets have created a wide range of investment opportunities that allow capital to be allocated to its most productive uses and risks to be dispersed across a wide range of market participants. Yet, as we are now seeing, innovation can also create challenges if market participants face difficulties in valuing a new instrument because they realize that they do not have the information they need or if they are uncertain about the information they do have. In such situations, price discovery and liquidity in the market for those innovative products can become impaired.

Answer the questions pertaining to the statement

a. What are the information costs associated with financial assets?

b. What is meant by "liquidity"?

c. Why do you think that for innovative financial products price discovery and liquidity could become impaired?

Reference no: EM131313477

Questions Cloud

How reduced information costs in turn lower transaction cost : How do "Reduced information costs in turn lower transaction costs, thereby facilitating price discovery and enhancing market liquidity"?

Responsible for the success of the project : He explained further that, as manager, he was responsible for the success of the project, and so everyone would be equally to blame for the failure of the project.

Rewrite the longest common substring code as a class : Write a program that uses a brute force technique to find the longest common substring. Use the Timing class to compare the brute force method with the dynamic programming method. Use the program from Exercise 1 for your dynamic programming soluti..

Are you entirely comfortable with information that appears : Are you entirely comfortable with the information that appears? Will you use features such as Google Alerts? Why or why not? What are three steps you can take to set up a professional presence online?

What are information costs associated with financial assets : What are the information costs associated with financial assets?- Why do you think that for innovative financial products price discovery and liquidity could become impaired?

Interpret the implications of unethical behavior : Assume you are an instructor presenting an unethical case study to your graduate students. Develop a PowerPoint presentation on the person/business of your choice.

Which of the heuristics tendencies described : Think about the hundreds of decisions you made this week. Which of the heuristics (mental shortcuts) or tendencies described in Chapter 8 did you employ? Provide at least 3 examples.

Distinguish investment management from financial management : What distinguishes investment management from financial management?- What is the role of a discount rate in decision-making?

Techniques to address business problem : Write a summary 1500 to 3000 words explaining to upper management the chosen multivariate technique how it is different from the other 2 techniques how at least 1 other real life company have used these techniques to address business problem and ..

User Account

All Pages