Financial Markets and Institutions (2-downloads)

intermediation, is the primary route for moving funds from lenders to borrowers.

Indeed, although the media focus much of their attention on securities markets,

particularly the stock market, financial intermediaries are a far more important source

of financing for corporations than securities markets are. This is true not only for

the United States but also for other industrialized countries (see the Global box on

p. 24). Why are financial intermediaries and indirect finance so important in finan-

cial markets? To answer this question, we need to understand the role of transac-

tion costs, risk sharing, and information costs in financial markets.

Transaction Costs