2-1 How does a cost-efficient capital market help reduce the prices of goods and services?
The prices of goods and services must cover their costs. Costs include labor, materials, and capital. Capital
costs to a borrower include a return to the saver who supplied the capital, plus a mark-up (called a
“spread”) for the financial intermediary that brings the saver and the borrower together. The more
efficient the financial system, the lower the costs of intermediation, the lower the costs to the
borrower, and, hence, the lower the prices of goods and services to consumers.
2-6 What types of changes have financial markets experienced during the last two decades? Have they
been perceived as positive or negative changes? Explain.
Financial markets have experienced many changes during the last two decades. Technological advances in
computers and telecommunications, along with the globalization of banking and commerce, have
led to deregulation, which has increased competition throughout the world. As a result, there are
more efficient, internationally linked markets, which are far more complex than what existed a few
years ago. While these developments have been largely positive, they have also created problems
