Chapter-1-On-the-Role-of-Financial-Markets-and-Institutions_2015_Intermediate-Financial-Theory-Third-Edition-推荐.pdf

C H A P T E R 1 On the Role of Financial Markets and Institutions Chapter Outline 1.1 Finance: The Time Dimension 3 1.2 Desynchronization: The Risk Dimension 6 1.3 The Screening and Monitoring Functions of the Financial System 7 1.4 The Financial System and Economic Growth 8 1.5 Financial Markets and Social Welfare 12 1.6 Financial Intermediation and the Business Cycle 18 1.7 Financial Crises 19 1.8 Conclusion 22 References 23 Complementary Readings 24 Appendix: Introduction to General Equilibrium Theory 24 Pareto Optimal Allocations 25 Competitive Equilibrium 27 1.1 Finance: The Time Dimension Why do we need financial markets and institutions? We choose to address this question as our introduction to this text on financial theory. In doing so, we touch on some of the most difficult issues in finance and introduce concepts that will eventually require extensive development. Our purpose here is to phrase this question as an appropriate background for the study of the more technical issues that will occupy us at length. We also want to introduce some important elements of the necessary terminology. We ask the reader’s patience as most of the sometimes difficult material introduced here will be taken up in more detail in the following chapters. Fundamentally, a financial system is a set of institutions and markets permitting the exchange of contracts and the provision of services for the purpose of allowing the income and consumption streams of economic agents to be desynchronized—i.e., made less similar. It can, in fact, be argued that indeed the primary function of the financial system is to Intermediate Financial Theory. 3 © 2015 Elsevier Inc. All rights reserved. 4 Chapter 1 permit such desynchronization. There are two dimensions to this function: the time dimension and the risk dimension. Le