... the ultimate lenders. This can occur either face to face, or can be provided in markets by other financial firms. In our previous model we saw that financial assets held promised to deliver gain at some point in the future. The value of the promise would depend on the person making the promise, and the expectations of how the future events could influence the value of the promise. There are also preferred habits of borrowers and lenders. It is likely the lender will want short-term returns, and it is likely that the borrower will only anticipate long-term returns to pay off the loan. Therefore there is a need for common ground and in the previous system this would have incurred search and/or transaction costs, which were involved in meeting/obtaining information on the other party. This meant these costs directly translated into the interest rate on the loan, thus reducing the ...

See this essay or coursework document in full right now