There are advantages and disadvantages to managers compensation plan. Compensation plans tie the income of managers too the success of the firm. A major part of the compensation of top executives typically is in the form of sock option, the shareholders. However; options can create its own agency problem. Options which means that the managers will not do well unless the price of the stock increases, benefiting can create an incentive for managers to manipulate information to prop up a stock temporarily, given them the chance to cash out before the stock price returns to a level reflective of the firm's true prospect. .
The securitization of mortgages means mortgage can be traded just like other securities. Availability of funds to homebuyers no longer depends on local credit conditions and is no longer subject to local ban's potential monopoly powers; with mortgages passs-throughs trading in national markets, mortgages can flow worldwide to wherever demand is greatest. .
Banks, investment companies, insurance companies, and credit unions are known as financial intermediaries. Bank raises funds by borrowing (taking deposits) and lending that money to other borrowers together. The spread between interest rates paid to depositors and the rates charged to borrowers is the source of the banks profit.
Investment companies, insurance companies, and credit unions all offer similar services. 1) By pooling he resources of many small inventors, they are able to lend considerable sums to large borrowers.2) by lending to many borrowers, intermediaries achieve significant diversification, so that they can accept loans that individually might be too risky.3) intermediaries build expertise through the volume of businesses they do and can use economies of scale and scope assets and monitor risk. .
Investment bankers such as Goldman, Sachs, and Merrill Lynch advise the issuing corporations on the price it can charge for securities issued and appropriate interest rate.
