FN1024 Summary of Chapter 4 - Role of Financial Intermediation

PRINCIPLES OF BANKING
AND FINANCE
- Chapter 4: Role of financial intermediation -

Note: We suggest first studying this chapter from the Subject
Guide. Notes for ch4 are based on the essential readings.




Good luck studying!


short manual:
- includes a graph
- includes a schema/diagram
- includes an introduction
- includes additional information that
is not in the main textbook updated: 25/03/2018

, CONTENTS
CHAPTER 8: WHY DO FINANCIAL INSTITUTIONS EXIST?
- Mishkin chapter 7 -
8.1. Basic facts about financial structure throughout the world …………. 1
8.2. Transactions costs ……………………………….……………………………………… 2
8.3. Adverse selection (lemons problem)
8.3.1. Problem of adverse selection ……………………………….…………. 3
8.3.2. Solving adverse selection ………………………………………………… 4
8.4. Moral hazard
8.4.1. Moral hazard in equity contracts (principal-agent problem) 6
8.4.2. Moral hazard in debt contracts ……………………………………….. 7
8.5. Importance of financial development ………………………………………….. 8
8.6. Conflict of interest
8.6.1. Causes of conflict of intersst …………………………………………… 9
8.6.2. Remedies to conflict of interest ………………………………………. 11