By Jakob de Haan, Sander Oosterloo, Dirk Schoenmaker
Because the first variation of this booklet, the world's economic climate went via its maximum problem for a century. What made this drawback distinct is that serious monetary difficulties emerged concurrently in lots of diverse nations and that its monetary effect used to be felt during the global as a result of elevated interconnectedness of the worldwide economic climate. Written for undergraduate and graduate scholars of finance, economics and company, the second one variation of this profitable textbook presents a clean research of the area economic climate in gentle of the hot monetary problem. Combining thought, empirical facts and coverage, it examines and explains monetary markets, monetary infrastructures, monetary associations and demanding situations within the area of monetary supervision and pageant coverage. This re-creation good points 3 thoroughly new chapters, one on monetary crises, a moment on monetary innovation, and, at the coverage facet, a 3rd at the financial coverage of the ecu important financial institution.
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Extra resources for Financial Markets and Institutions: A European Perspective
By making managers’ compensation depend on the firm’s performance, shareholders can provide incentives for the management of the firm. Examples include direct ownership of shares, stock options, and bonuses dependent on the share price. However, contingent compensation may also have a less desirable effect. If the managers’ compensation is sensitive to the performance of the firm, they will have an incentive to take excessive risks as they benefit greatly from good performance, while the penalties for poor performance are limited (Allen and Gale, 2000).
The agency problem is solved by financial institutions acting as the outside monitor for firms (Allen and Gale, 2000). The main characteristics of this system are a long-term relationship between banksÂ€– but potentially also other financial intermediaries like institutional investors (see Chapter 9)Â€– and firms, the holding of both equity and debt by the financial intermediary, and the active intervention by the financial intermediary should the firm become financially distressed. The case for a market-based system focuses on the problems created by powerful banks.
The response of the business investment to business cycles is smoother for countries in the lower half of the Financial Index (more relationship-based). Complements Some authors argue that financial markets and financial intermediaries may provide complementary growth-enhancing financial services to the economy. Intermediaries may be necessary for the successful functioning of markets. A historical perspective shows that financial markets did not develop spontaneously. The earliest financial transactions involving loans were handled by financial intermediaries.