The Economics of Financial Markets
Given ever-present problems related to risk, uncertainty, and information, people strive for solutions. They write contracts and form intermediaries to pursue their goals. Unbeknownst to individuals minding their own business, the market process is at work, whereby competition rewards innovation and punishes waste. This selection process also works in financial transactions and makes our lives easier. For example, people can lend their funds and buy stocks with securities markets; people can mitigate wildly fluctuating commodity prices with a simple contract; people can buy goods abroad with foreign exchange markets; people can limit information asymmetry with insurance policies; people can save money ...
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