Financial Intermediaries Assignment Example | Topics and Well Written Essays - 250 words

Financial Intermediaries - Assignment ExampleA drawback of the approach is that it is hard to get hold bank conduct and that the approach excludes foreign banks in the determination of competition (Bell, Brooks and Prokopczuk, 2013 p.197).The Panzar-Rosse H-Statistic relates a firms conduct with models of different mart structures such as monopoly, monopolistic competition, imperfect competition or perfect competition (Schaeck, Cihak and Wolfe, 2009 p.715). It demonstrates how the elasticity of a firms revenue differs under the different merchandise structures. Although the model is quite straightforward under monopoly and perfect competition, imperfect competition, and monopolistic competition pose some complexities for this approach. The H-Statistic also assumes equilibrium for the banking marketplace in the long-run.The Lerner big businessman uses the relationship between a firms price and marginal cost as a basis for the measurement of the firms market power. The index is a reciprocal of the price elasticity of demand and indicates the proportion price exceeds marginal cost. A disadvantage of the Lerner index is that it fails to demonstrate the substitutability of a product (Bell et al., 2013 206).The Boone Indicator assesses, in terms of strength, the relationship between efficiency and performance. Accordingly, superior performance is achievable for more cost-efficient banks. Under competitive market conditions, banks show more aggression in order to achieve the superior performance as compared to competitors (Bell et al., 2013 p.206). The Boone Indicator does not share the disadvantages of the H-Statistic and the Lerner Index. It demonstrates the aggression more efficient banks employ in the exploitation of their cost advantage. As a measure of competition, Persistence of Profits proposes that entry and exit provide a sufficient pass for the elimination of abnormal profits. Accordingly, profit rates for all firms would converge towards some averag e value in the