Popular in Financial Institutions
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This 3 page Class Notes was uploaded by Sylvia Notetaker on Thursday September 3, 2015. The Class Notes belongs to FNAN 321 at George Mason University taught by Mike Anderson in Spring 2015. Since its upload, it has received 73 views. For similar materials see Financial Institutions in Finance at George Mason University.
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Date Created: 09/03/15
FNAN 321 Week 1 Class 1 why are Fls important Slide 25 An economy without financial institutions Slide 27 Market fictions transaction costs Buying stocks l as investor I know everything I do if I wanna sell or buy stocks Do we live in an ideal world No Collecting money from retirees Information cost wall street journal for example you are not going to get this for free They will have a slow economy Slide 29 Two implicit Two types adverse and moral Adverse as an investor as you look for the opportunities of investments there are more bad investments out there There are bias world of investments Bad ideas more than good ideas Why would you have bad borrowers than good borrowers the bad expand and they do not return back the money so they need to go to the bank and they will need more loans The good borrowers will return back the money and invest the money The bad is always in need of money Diversification increase our sample Price risk What they need to do to minimize the selection back round checks talk to the borrowers to know they are good screening They can be diversified away to elect our risk Moral happen after investment the borrower is going to make something risky with the loan than the bank expects You cannot have investors that do more risky stuff To reduce risk of moral you have to screening monitor the investors by what they are doing The classical example of moral is before you go for insurance after the insurance is monitoring you Progressive example of snapshot in the car to monitor the driver Slide 31 Adverse selection Who the bank they are screening asking questions Slide 32 Free rider no one is screening the monitor Slide 33 You need only one to attend or to show up and then when he knows that you are lying then he will take his money back and let everyone else knows about it Slide34 Since there is no secondary market then you will go door to door to buy your stocks Slide 35 Transaction costs mainly in liquid risk To reduce your risk If there is no financial institution Slide 38 They will play brokers and asset transformer Broker you call him if you want to sell or buy sth Asset transformer accept cash from the savers in deposit and gave it to the borrowers as cash They are as institutions as a banks Slide 39 How does it help investors reduces information costs reduces transaction costs Slide 43 Deposits are liquid Easier to sell mutual fund than any other shares Slide 48 Safety and soundness regulation Diversification Fl can not lend more that a certain fraction of their equity capital to a single borrower This limits their exposure to the fallout of a single borrower Guarantv funds Fls pay into various insurance funds FDIC depository fund which protect investors against losses should the FI fail Monitoring and Surveillance various government agencies monitor the activities of Fis
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