1.1. Introduction – perfect capital markets

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来自 Moscow Institute of Physics and Technology 的课程

Capital Markets and Financial Institutions – How to Survive Them

4 个评分

Moscow Institute of Physics and Technology

Capital Markets and Financial Institutions – How to Survive Them

4 个评分

课程 1（共 5 门，Specialization Understanding Modern Finance）

Capital markets and financial institutions are all around us. This is an enormous industry in which powerful players oftentimes challenge investors and the public at large and expose them to significant risks. This Course provides for the deep understanding of the core ideas, concepts, and mechanisms of the modern capital market in a learner-friendly way. We will analyze the market’s most fundamental problems, realize the intrinsic interests of the market participants, reveal the true meaning of certain financial terms, and uncover credible signals of the likely behavior of economic agents – all that with little math and a lot of fun. The learners will be much better positioned with respect to the financial environment. They will see through the financial news, reveal the risks of the financiers’ wishful thinking promises, and protect themselves against dangerous adventures. The learners will get the opportunity to use the obtained knowledge, skills, and understanding for the successful professional career in the financial and other business areas, as well as in their day-to-day life.

从本节课中

Perfect Capital Markets. Problems Caused by Private Information

In Week 1 we propose the set of assumptions and the framework of our discussion. We will discuss perfect capital markets and see how the deviations from this idealized model that are observed in our real life result in the demand for financial intermediation and for the services of financial institutions. We will discuss the fundamental problems caused by the existence of private information (moral hazard и adverse selection) and the damage they lead to. Based on the most simplistic models you will be able do delve deeper into the core of these problems and to evaluate their potential scale. You will learn what role the moral hazard plays in insurance, and how the adverse selection and moral hazard problems reduce the efficiency of lending.

1.1. Introduction – perfect capital markets5:27

1.2. Demand for the financial intermediation6:08

1.3. Model of private information – key assumptions6:15

1.4. Model of moral hazard14:11

1.5. Co-insurance as a market solution to the moral hazard problem4:17

1.6. Moral hazard in insurance (1) – a more advanced model12:37

1.7. Moral hazard in insurance (2) – incomplete insurance8:45

1.8. Model of adverse selection11:43

1.9. Adverse selection in credit markets (1) – expected cash flows to the bank12:54

1.10. Adverse selection in credit markets (2) – credit rationing8:20

1.11. Moral hazard from increasing interest rates9:45

与讲师见面

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

Welcome everyone to my office,

in the beginning of capital markets course.

Capital markets is a huge area,

and obviously, we can take different ways to study.

One is a more descriptive way in which we can describe what's going on in

these markets to tell stories and hopefully to try to understand something behind them.

Another way is a more analytical way in which

we will study the core issues in this market.

And studying them, we'll follow through the logic that the epsilon to some conclusions.

We will take the second way.

Hopefully, these books in the background will help us think together.

Now, when we study capital markets in this more analytical way,

we will have to start with making some assumptions,

or as we will see just a few minutes later,

actually we will see the lack of some assumptions.

When people tackled capital markets and finance in general,

they make assumptions about the people that operate in these markets,

about the market itself,

assumptions about time and some other things.

The most widespread and the most accepted thing

in studying finance is the so-called perfect capital markets paradigm,

or a set of major assumptions about a market that basically tell that

the perfect capital markets is the one in which there are three main issues.

One, there are no transaction costs.

Now put number three, no regulatory distortion.

And then, I will use the blue marker number two,

which is quoted as no information asymmetry.

This is the core assumption.

And in these markets, magic things happen.

First of all, as we will see in our next course about corporate finance and value.

Even within these strict assumptions,

we can get some nice and positive results.

Well, clearly, these markets never existed,

never exist and never will exist.

But some of the sub-segments of global capital markets,

they are closer or further from these assumptions.

But, in this market,

certain strange things occur.

Well, first of all, in these markets,

there is no demand for the existence of any financial institutions.

In this market, there are no banks,

no insurance companies, no business schools,

and clearly, no courses like this.

And observing all of that around us,

we make some statement,

well, maybe the markets in which we live and operate are different.

Well, they indeed are.

And as long as the real market cannot,

we'll just apply by this assumptions,

we will indeed see the emergence of

the fundamental demand for the services of financial institutions.

And it is due to this blue thing,

or actually the lack there of,

that these financial institutions they come into play.

For the purposes of this course,

most of the pieces like transaction costs and

regulatory distortions will be taken as exogenous.

And as far as this is concerned,

we'll concentrate on the idea of information asymmetry.

Now, another way to describe that is a so-called existence of private information.

It is the ideal private information that is by far the most important in this course.

And it is this idea that we will study throughout this course and

specifically throughout the first part

in which we will build a model of this private information.

Now the question is,

is private information such a big deal?

It can be shown that unfortunately,

the existence of that is a huge problem and if we do not tackle that,

unfortunately, the potential damage may be such that it will actually,

fundamentally distort the whole not only shape but also the idea of capital markets.

And that is why we study that in such detail.

So from now on, we will say the real market is such that

this is no longer a feasible thing.

So, welcome to a world of private information.

In the next episode,

I will show to you how this very thing results in the emergence

of huge and fundamental demand for the services of financial institutions.

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