文档介绍：Part Five
Fundamentals of Financial Institutions
Chapter 15
Why Do Financial Institutions Exist?
Chapter Previecurities is not the primary way in which businesses finance their operations.
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Facts of Financial Structure
Indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance, in which businesses raise funds directly from lenders in financial markets.
Financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses.
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Facts of Financial Structure
The financial system is among the most heavily regulated sectors of economy.
Only large, well-established corporations have easy access to securities markets to finance their activities.
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Facts of Financial Structure
Collateral is a prevalent feature of debt contracts for both households and businesses.
Debt contracts are typically extremely complicated legal documents that place substantial restrictions on the behavior of the borrowers.
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Transactions Costs
Transactions costs influence financial structure
., a $5,000 investment only allows you to purchase 100 shares @ $50 / share (equity)
No diversification
Bonds even worse—most have a $1,000 size
In sum, transactions costs can hinder flow of funds to people with productive investment opportunities
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Transactions Costs
Financial intermediaries make profits by reducing transactions costs
Take advantage of economies of scale (example: mutual funds)
Develop expertise to lower transactions costs
Also provides investors with liquidity, which explains Fact # 3 (slide 15-10)
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