Chapter6The Economics ofFinancialIntermediationMcGraw-Hilly/rwinCopyright 2006byTheMcGraw-Hill Companies,Inc.All rights reserved
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 The Economics of Financial Intermediation
CONTENS86.1FlowofFunds:Directand IndirectFinance6.2RoleofFinancialIntermediation6.3InformationAsymmetriesandInformationCosts11-2
11-2 CONTENS 6.1 Flow of Funds: Direct and Indirect Finance 6.2 Role of Financial Intermediation 6.3 Information Asymmetries and Information Costs
6.1 Flow of Funds:DirectCand Indirect FinanceaTable 11.1The Relative Importance of Directand IndirectFinance(Averagesfor1980-1995)Direct FinanceIndirect FinanceCredit ExtendedRatioofStock MarketOutstandingIndirectbyBanks&OtherFinancialto DirectCapitalizationDomestic DebtFinanceas PercentSecurities asInstitutions asofGDPPercentof GDPPercentof GDPC/(A+B)(A)(C)(D)(B)CountryIndustrialized Countries1.5France19.8%41.2%90.9%1.618.637.492.3Germany8.14.340.23.2Greece11.9Italy28.150.51.373.030.0169.31.6Japan74.40.876.314.4United Kingdom1.258.252.6130.7United StatesEmerging Markets Countries5.94.815.01.4Argentina1.6Brazil11.94.024.75.7India13.226.81.411-3
11-3 6.1 Flow of Funds: Direct and Indirect Finance
6.2 Five Roles ofC8FinancialIntermediariesPooling SavingsSafekeepingand AccountingProviding LiquidityRisksharingInformationServices11-4
11-4 6.2 Five Roles of Financial Intermediaries Pooling Savings Safekeeping and Accounting Providing Liquidity Risk sharing Information Services
ASummaryoftheRoleofCOOFinancial Intermediaries3.Providing Liquidity: Allowing depositors totransform their financial assets into money quicklyeasily, and at low cost.4.Risk sharing: Providing investors with the ability todiversify even small investments.5. Information Services: Collecting and processinglarge amounts of standardized financial information11-5
11-5 A Summary of the Role of Financial Intermediaries 3.Providing Liquidity: Allowing depositors to transform their financial assets into money quickly, easily, and at low cost. 4.Risk sharing: Providing investors with the ability to diversify even small investments. 5. Information Services: Collecting and processing large amounts of standardized financial information