ABSTRACT
This chapter examines how individual financial transactions affect financial system organisation and performance. To provide a perspective, the chapter first considers relations between securities prices in a perfect financial market. The securities price effects of market incompleteness and of differing information are then discussed. The chapter next examines intermediary activity, focusing particularly on how informational conditions affect intermediaries’ decisions to provide finance. Finally, the chapter considers the differences between governing routine and innovative transactions, and the effect of these differences on financial system structure.
