[资本市场和金融机构].1-2教学案例.pptVIP

4. Economic functions of FIs;;B) Asset/risk transformation The FI transforms a financial claim in a different financial claim with different risk characteristics Technically: The FI purchase financial claims -primary securities (issued by corporations) by selling financial claims -secondary claims (issued by FIs);BENEFITS: Decreased information costs and transaction costs Information costs Costs associated in the gathering of information due to Information Asymmetry * Adverse Selection * Moral Hazard ;Adverse Selection: Occurs when the potential borrower who knows better his credit (bad) risk is the most likely to seek out a loan. Problem created by asymmetric information before the transaction occurs Moral Hazard: Occurs when the borrower might engage in activities that are undesirable from the lender’s point of view because they make it less likely that the loan will be paid back. Problem created by asymmetric information after the transaction occurs Moral Hazard creates Agency Costs Costs related to the risk that borrowers (managers, owners) will use the funds contrary to the interests of savers (lenders). ;Financial Intermediaries are Better equipped in - Screening out good from bad risk profiles - Monitoring the entities after the transaction occurs - Reducing agency costs Thus, ↓ information asymmetry ? ↓costs Transaction costs Economies of scale. FIs have the resources to trade large volume of transactions such as the transaction cost per unit is highly reduced. ;Other Functions;5. Financial Innovation;Types of Risks faced by FIs ;6. Regulation of the Financial System; 2. To protect investors from illegal or unethical practices from FI and non-FIs. Provincial Securities Commissions, TSX, ME, ? ↓ Asymmetric Information Better control of monetary policy by the Bank of Canada For example Canadian depository institutions are required to keep funds (settlement bal