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etric information Transactions Costs 1. Financial intermediaries make profits by reducing transactions costs 2. Reduce transactions costs by developing expertise and taking advantage of economies of scale 5 169。 2023 Pearson Education Canada Inc. Function of Financial Intermediaries Risk Sharing 1. Create and sell assets with low risk characteristics and then use the funds to buy assets with more risk (also called asset transformation). 2. Also lower risk by helping people to diversify portfolios 6 169。 2023 Pearson Education Canada Inc. Asymmetric Information: Adverse Selection,and Moral Hazard Adverse Selection 1. Before transaction occurs 2. Potent