Diamond And Dybvig Case Study

1077 Words 5 Pages
Chapter -1- Introduction
The changing world of technology and intensity of competition, boosted by the mechanisms of globalization, have had direct implications for the way financial intermediaries define business strategies and approach their customers to achieve competitive advantage. In fact, it is clear that technological innovation not only allows for lower costs, but also opens up a set of newer opportunities that allow businesses to perform better in differentiated ways.
A look of the Diamond and Dybvig (1983) model shows how financial intermediaries can enhance risk sharing, which can be a precondition of liquidity provision, and can thus improve welfare in an economy. Provision of liquidity and economic performance arises due to high
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Current studies show that financial innovations in the advancement of these services lead to efficiency and promote economic growth. Research works have clearly indicated that financial institutions spent heavily to improve, integrate and implement the use of advanced technologies in their services, such as Automatic teller machines (ATM), Mobile banking, Online payment systems, Credit and/or Debit cards (Master card, Visa card, gift cards) and etc. These innovations in the payment systems help by providing fundamental benefits being: International payment networks connecting buyers and sellers, which are safe, sound, and bringing an ever-increasing stages of security and as well as consumer consent: Greater economic transparency and comprehensibility: Increased economic stimulation: Widened participation in the financial system and …show more content…
Nosal and Rocheteau (2011) provide a coherent dynamic framework to examine and investigate into the economics of money and payment by explicitly modeling the trade friction between agents. Sébastien Lotz & Françoise Vasselin (2013) captures the strategic complementarities between consumers and retailers, and studies the condition for the adoption of e-money and its replacement for cash.
In modeling these concepts, we identified some frictions in both the traditional and new payment systems. In the traditional payment system, because of the involvement of different countries in the trade, getting the appropriate foreign currency is the big issues and this limit the existence of trade between agents. If the agent gets foreign currency at the required exchange rate he can able to consume the optimal amount of quantity depend on his/her monetary balance and trade becomes

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