To reduce the impact of asymmetric information.
Financial intermediation.
The risk that a borrower has incentives to engage in undesirable activities after a transaction occurs.
After a transaction occurs.
Institutions that facilitate the channeling of funds between savers and borrowers.
Bonds denominated in a foreign currency and targeted at a foreign market.
When savers do not lend directly to borrowers but through intermediaries.
Commercial banks and thrifts.
To disclose certain information about their sales, assets, and earnings to the public.
To ensure the soundness of financial intermediaries.
Most investments in liquid government and corporate securities.
The expansion of debt and equity markets in the international setting.
A charter from the state or federal government.
By developing expertise and taking advantage of economies of scale.
Financial intermediaries.
Due to transactions costs, risk sharing, and asymmetric information.
Very tight regulations on who is allowed to set up a financial intermediary.
Due to the belief that unrestricted interest-rate competition encouraged bank failures.
Competition has been inhibited.
An ownership claim.
To increase information to investors.
Adverse selection and moral hazard.
Types of instruments, purpose, organization, and time horizon.
Banks and insurance companies.
They help individuals and businesses diversify their asset holdings.
Unhealthy individuals are more likely to seek insurance to cover their known medical problems.
To facilitate the exchange of financial assets and allocate resources efficiently.
By selling shares to individual investors.
Commercial, consumer, and mortgage loans.
Less than 1 year.
Funds through employee and employer payroll contributions.
They make profits by reducing transactions costs.
To ensure the soundness of financial intermediaries.
Risk sharing.
By creating and selling assets with lesser risk.
They are subject to periodic inspection.
They help reduce the exposure of investors to risk.
Adverse selection and moral hazard problems.
They have fairly predictable future payout requirements.
Because loss events are harder to predict.
They are restricted on what assets they can hold and what activities they can engage in.
They reduce transaction costs, share risk, and reduce information problems.
It refers to the situation where potential borrowers most likely to produce adverse outcomes are the ones most likely to seek a loan.
Before a transaction occurs.
Asset transformation.
Certain information must be available to the public.
They provide protection against financial loss and manage risk.
Commercial paper, bonds, and stocks.
Funds at periodic intervals on a contractual basis.
They provide tools for hedging against risks associated with investments.
Restrictions on Assets and Activities.
To facilitate indirect finance.
The interest rates that can be paid on deposits.
Bursa Malaysia Stock Exchange or New York Stock Exchange.
Markets where dealers at different locations buy and sell.
The market for securities.
It can be viewed as a conflict of interest.
To increase investor information.
They produce large losses for the public and cause serious damage to the economy.
Via ballot, often involving an investment bank that underwrites the offering.
By allowing assets to be bought and sold quickly without significant price changes.
Individual investors, many of whom have shares in retirement accounts.
Disclosure.
To examine the flow of funds through the financial system and the role of intermediaries.
Borrowers borrow directly from lenders in financial markets by selling financial instruments that are claims on the borrower’s future income or assets.
Borrowers borrow indirectly from lenders via financial intermediaries by issuing financial instruments that are claims on the borrower’s future income or assets.
They source both loanable funds and loan opportunities.
Oversight of financial institutions and markets by designated agencies.
U.S. dollars deposited outside the United States, for example, in London.
To facilitate the allocation of resources and risk.
By investing in highly liquid and safe short-term money market instruments.
The integration and interaction of financial markets across different countries.
Restrictions on Entry.
Limits on Competition.
Private retirement schemes.
One party lacking crucial information about another party, impacting decision-making.
To ensure that funds are safe and that the intermediary can meet its obligations to customers.
Channels funds from 'Lender-Savers' to 'Borrower-Spenders'.
Persons or businesses without investment opportunities.
Individuals or entities that have investment opportunities.
Banks.
The gain from selling shares.
It offers an alternative source for U.S. dollars.
No, at one point Japan's stock market was larger than the U.S. market.
It may hinder their efficient operation and keep investors away.
In less liquid corporate securities and mortgages.
Bursa Malaysia and Mesdaq.
To ensure stability, protect investors, and maintain confidence in the financial system.
Indirect finance.
Markets where trades are conducted in central locations.
They must follow stringent reporting requirements.
Certain strict principles.
By facilitating the flow of funds from those who have excess to those who need it.
Bonds denominated in one currency but sold in a different market.
It may lead to a financial panic.
To keep a certain fraction of their deposits in accounts with the Federal Reserve System.
The Fed.
They purchase large, diversified portfolios of stocks and bonds.
Institutions that facilitate the channeling of funds between savers and borrowers.
The numerous types of financial intermediaries.
To oversee various institutions and markets.
By allowing individuals to buy a range of assets, pool them, and sell rights to the diversified pool.
To improve monetary control.
They pool money from multiple investors to invest in a diversified portfolio.
By providing a platform for raising capital and enabling investments.
It restricts trading by the largest stockholders (insiders) in the corporation.
Banks, insurance companies, and mutual funds.
EPF/KWSP, SOCSO, LTAT, KWAP, banks, corporations like TM, TNB, Petronas.
Long-term securities and equities.
Via annuities.
To insure depositors against financial loss if a financial intermediary fails.
Short-Term (maturity < 1 year), Intermediate Term (maturity in-between), Long-Term (maturity > 10 years).
They pay dividends, in theory, forever.
A market where foreign currency is deposited outside of its home country.
They make loans or investments with borrowers.
They advise companies on securities to issue, underwrite security offerings, offer Merger & Acquisition assistance, and act as dealers in security markets.
Over 80%.
They act as dealers in security markets and assist in underwriting the offerings.
They comprise the largest financial intermediary and have the most diversified asset portfolios.
Borrowing 100 million at 4.5% and lending it at 9%.
In corporate securities.
Perbadanan Insurans Deposit Malaysia.
The government.
To act as a middleman between savers and borrowers.
By collecting funds from savers.
They acquire funds by selling checkable deposit-like shares to individual investors and use the proceeds to purchase highly liquid and safe short-term money market instruments.
The Eurobond market is now larger than the U.S. corporate bond market.
To lend to consumers for durable goods and to small businesses for operations.
They help determine the prices of financial instruments based on supply and demand.
To connect savers and borrowers, facilitating the flow of funds.
To protect depositors' funds in case of bank failure.
More than 1 year.
People may engage in risky activities only after being insured.
To ensure the soundness of financial intermediaries.
Due to doubts about the overall health of the institutions.
Reserve requirements.
Financial intermediaries that accept deposits and make loans.
They manage retirement savings and invest them to provide income during retirement.
By issuing checkable, savings, and time deposits.
A market where new security issues are sold to initial buyers, typically through Initial Public Offerings (IPOs).
The organization and framework through which financial transactions occur.
A market where previously issued securities are bought and sold.
Because actual benefit payouts are close to those predicted by actuarial analysis.
Both brokers and dealers.
Restrictions on Interest Rates.
Funds at periodic intervals on a contractual basis.
