Chapter 2.2 Financial Markets & Institutions

Question 1

Financial Intermediaries

Answer 1

Benefits
- maturity transformation; investors desire for liquidity & borrowers desire for longer periods of loan
- aggregation of funds; aggregate smaller savings and lend to borrowers in larger amounts
- Risk pooling

Question 2

Financial markets

Answer 2

• Disintermediaries; Firm borrowing directly from investors
• Money markets; short-term finance
• Capital market; long-term finance
• Primary market; Firm raise new share
• Secondary markets; share trading between investors