/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q.2 What are the transaction costs p... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 8: Q.2 (page 235)

What are the transaction costs problems facing financial organizations? Explain how financial intermediaries can help reduce these problems.

Short Answer

Expert verified

Economies of scale relate to the benefit of mass manufacturing or other business operations in lowering cost per unit by increasing production or other business activities without increasing costs.

Step by step solution

01

Introduction

Financial intermediaries are institutions or enterprises that operate as a middleman, accepting monies from the general public and then lending them to other businesses or individuals that need to borrow.

02

Explanation

Economiesofscalearethebenefitsofmassmanufacturingorotherbusinessoperationsthatlowerthecostperunitbyincreasingproductionorotherbusinessactivitieswithoutincreasingcosts.
Theemergenceoffinancialinstitutionsisduetoeconomiesofscale,whichreducetransactioncosts.
Financialinstitutionsarecriticaltothefunctioningofanyeconomy.
Some financial organizations provide a variety of transaction cost-cutting options.
Mutual funds, for example, benefit from economies of scale.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database and find data on net worth of households (TNWBSHNO) and the net percentage of domestic banks tightening standards for auto loans (STDSAUTO). Adjust the units setting for the net worth indicator to 鈥淧ercent Change from Year Ago,鈥� and download the data into a spreadsheet.

a. Calculate the average, over the most recent four quarters and the four quarters prior to that, for the bank standards indicator and the 鈥減ercent change in net worth鈥� indicator. Do these averages behave as you would expect?

b. Use the Data Analysis tool in Excel to calculate the correlation coefficient for the two data series from 2011:Q2 to the most recent quarter of data available. What can you conclude about the relationship between the net worth of households and bank auto lending standards? Is this result consistent with efforts to reduce asymmetric information?

Would you be more willing to lend to a friend if she had put all of her life savings into her business than you would be if she had not done so? Why?

Go to the St. Louis Federal Reserve FRED database and find data on the percent of value of loans secured by collateral for all commercial and industrial loans (ESANQ) and the net percentage of domestic banks tightening standards for commercial and industrial loans to large and middle-market firms (DRTSCILM). Download the data into a spreadsheet.

a. Calculate the average, over the most recent four quarters and the four quarters prior to that, for the bank standards indicator and the 鈥減ercent of loans secured by collateral鈥� indicator. Do these averages behave as you would expect?

b. Use the Data Analysis tool in Excel to calculate the correlation coefficient for the two data series from 1997:Q3 to the most recent quarter of data available. What can you conclude about the relationship between collateral and bank C&I lending standards? Is this result consistent with efforts to reduce asymmetric information?

Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do so?

Suppose you are applying for a mortgage loan. The loan officer tells you that if you get the loan, the bank will keep the house title until you pay back the loan. Which problem of asymmetric information is the bank trying to solve?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.