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valputin valputin
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7 years ago
Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.
Textbook 
The Economics of Money, Banking and Financial Markets, Business School Edition

The Economics of Money, Banking and Financial Markets, Business School Edition


Edition: 4th
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Our course uses > The Economics of Money, Banking and Financial Markets
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MeelaMeela
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7 years ago
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More solutions for this book are available here
 Adverse selection is the asymmetric information problem that exists before the transaction occurs. For lenders, it is the difficulty in judging a good credit risk from a bad credit risk. Moral hazard is the asymmetric information problem that exists after the transaction occurs. For lenders, it is the difficulty in making sure the borrower uses the funds appropriately. Financial intermediaries can reduce adverse selection through intensive screening and can reduce moral hazard by monitoring the borrower.
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valputin Author
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7 years ago
Perfect answer, thx
Our course uses > The Economics of Money, Banking and Financial Markets
wrote...
7 years ago
Slight Smile Good luck with the rest
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