The presence of transaction costs in financial markets explains,in part,why
A) financial intermediaries and indirect finance play such an important role in financial markets.
B) equity and bond financing play such an important role in financial markets.
C) corporations get more funds through equity financing than they get from financial intermediaries.
D) direct financing is more important than indirect financing as a source of funds.

Question

Quizplus · Accepted Answer

Transaction costs make it more expensive and difficult for individual investors to directly participate in financial markets. Financial intermediaries, such as banks and mutual funds, provide a valuable service by pooling funds from many investors and reducing transaction costs. This makes indirect finance a more feasible and attractive option for many investors, and thus plays an important role in financial markets.

The Presence of Transaction Costs in Financial Markets Explains,in Part,why