Basics of Corporate Finance
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True or False? Briefly explain in about 100-200 words.
a) The fact that firms so heavily rely on their internal capital market as a source of
financing is strong evidence that internal markets are more efficient than external
markets.
b) When underwriting equity or bond issues, investment banks are merely acting as
financial intermediaries without taking any risk of their own. Therefore, they are
charging unrealistically high fees for their services.
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Solution Summary
The expert provides a true or false response for firms with internal capital markets as a source of financing.
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The fact that firms so heavily rely on their internal capital market as a source of financing is strong evidence that internal markets are more efficient than external markets.
False. Because firms rely heavily on their internal capital markets because they have full knowledge about the functioning of the internal capital market (because of the past experience), competitive position, performance of ...
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