Business, 27.01.2022 01:50 lindsaynielsen13

Suppose that a small firm observes that large firms borrow directly from capital markets at a rate of 5%. However, the firm's search costs for finding a lender is 2% (per annum). A small lender (consumer) looking to place their funds directly (and hoping to earn 5%) with this small firm would need to underwrite the borrowing, potentially secure an interest in collateral, and monitor its performance afterwards. These activities would cost 2.5% on an annual basis for the small lender. A financial intermediary can make the borrower and lender both better off if they:

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Suppose that a small firm observes that large firms borrow directly from capital markets at a rate o...