Final Exam Flashcards Preview

Financial Instiutions > Final Exam > Flashcards

Flashcards in Final Exam Deck (11)
Loading flashcards...

Problems of direct non-market intermediation

Search costs
How do you find someone to lend money to?
Double co-incidence of wants:
Do they want to borrow exactly what you want to lend?
Contracting costs
How do you write a contract so that you will get your money back?
How do you know the borrower is not a deadbeat?
If you don’t receive payment how do you enforce your contract?
If you want your money back early how can you sell it


information asymmetry

When the seller knows more about the product then the buyer.
Used cars is a good example



Bringing borrowers and lenders together


Financial Intermediation: Financial Institutions

- Chartered banks
- Life insurance companies
- Property and casualty insurers
- Pensions


Market Intermediaries

Market Intermediaries are called brokers:
- Real estate brokers, stock brokers, etc.


Toronto Stock Exchange (TSE)

- Central meeting place
- Incorporated in 1878
- 1997 closed its trading floor became a computerized dealer

Junior equities on the TSX venture


Initial Listing

First time shares go onto a market is called an IPO
After that they are traded on a secondary market.


Seasoned Equity Offering

After the first IPO any other funds raised will be through a seasoned equity offering or SEO


Over the counter OTC (unlisted)

Small illiquid stocks and some large cap foreign stocks


Investment funds - Closed end

A collective fund with a fixed number of shares. Supply is limited so price is driven by supply and demand.

If they are traded below net asset value its called a discount and above a premium. (Generally at 10%-20% discount to NAV)


Investment Fund - Open End : Mutual Fund

These funds can accommodate demand by issuing new shares. Thus the value is equal to the funds underlying assets