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Financial Economics

Financial Intermediaries

A financial intermediary is a financial institution that connects surplus and deficit agents. The classic example of a financial intermediary is a bank that consolidates deposits and uses the funds to transform them into loans. The job of financial intermediaries is to connect borrowers to savers. For example, A bank loan is a form of indirect…
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The McFadden Act

The McFadden Act (1927 – 1994) was appealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act. The Act made national banks competitive against state-chartered banks by letting national banks add more branches to the extent permitted by state law.The McFadden Act specifically prohibited interstate branching by allowing each…
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Risk

Risk is the uncertainty of an asset’s return over a given period of time. Risk perception is the individual judgment people make about the severity of a risk and may varies from person to person.There are three types of people when it comes to risk: 1. Risk Averse They hate to lose more than they love to win. They try to avoid taking risks as…
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Financial Markets

In financial markets, people trade financial securities, commodities, and instruments at prices that reflect supply and demand. There are two types of Financial Markets - the primary market and the secondary market. All well-developed markets have standardized financial instruments.Financial Instruments are assets (claim) for people who hold…
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Efficient Market Hypothesis

The Efficient Market Hypothesis (EMH) is an application of ‘Rational Expectations Theory’ where people who enter the market, use all available & relevant information to make decisions. The only caveat is that information is costly and difficult to get.This Efficient Market Hypothesis implies that stock prices reflect all available and…
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