By the end of this chapter, students should be able to:
- Describe how nonfinancial companies meet their external financing needs.
- Explain why bonds play a relatively large role in the external financing of U.S. companies.
- Explain why most external finance is channeled through financial intermediaries.
- Define transaction costs and explain their importance.
- Define and describe asymmetric information and its importance.
- Define and explain adverse selection, moral hazard, and agency problems.
- Explain why the financial system is heavily regulated.