The presence of transactions costs and information costs
A)lowers the cost of funds to borrowers.
B)raises the expected return to lenders.
C)lowers the expected return to lenders.
D)increases the efficiency of the financial system.

Question

Quizplus · Accepted Answer

The presence of transactions costs and information costs raises the risk and uncertainty for lenders, which lowers their expected return. Borrowers may end up paying higher interest rates or fees to compensate lenders for their increased risk, but the overall effect is to lower the efficiency of the financial system.

The Presence of Transactions Costs and Information Costs