Question

Suppose we could eliminate the transaction costs associated with financial markets. Which of the following groups...

Suppose we could eliminate the transaction costs associated with financial markets. Which of the following groups are likely to increase their participation in financial markets as a result of this change?

A.

Foreign borrowers and savers
B.

Small borrowers and savers
C.

Large borrowers and savers
D.

Large corporations
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Answer #1

Option B is correct!!.

As we remove transaction cost from financial markets this will lead to more inclusion of persons in markets thereby making small borrowers and savers to participate in markets.

A. Incorrect, as foreign borrower and savers decision is not imoacted much by transaction cost rather than by fundamentals.

B. Correct, logic explained above.

C. Incorrect, Large borrowers and savers have capacity to bear extra cost of transaction.

D. Incorrect, large corporation can also bear such cost and therefore participate in financial markets.

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Thanks!!

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