EC223 Lecture Notes - Lecture 4: Mortgage Loan, Barter, Investment Fund
Document Summary
An example of economies of scale in the provision of financial services is spreading the cost of writing a standardized contract over many borrowers. Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an invest project. The difference in information is called: asymmetric information. Adverse selection is a problem associated with equity and debt contracts arising from: the lender"s relative lack of information about the borrower"s potential returns and risks of his investment activities. Depository institutions include: banks, trust and mortgage loan companies and credit unions. The primary assets of a finance company are: consumer and business loans. The liquidity of assets in contractual savings institutions is not an important consideration. Money (in this course): anything that is generally accepted for payment for goods and services or in the repayment of debts. Different form: wealth: total property that stores value, income: flow of earnings per unit of time.
