Top Posters
Since Sunday
4
s
4
t
4
k
4
H
3
S
3
c
3
m
3
b
3
d
3
d
3
b
3
Home Q & A Board Other Fields Homework Help Business Economics
New Topic  
valputin valputin
wrote...
Go to Answer
Posts: 5754
Rep: 3 0
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
Author:
Read 77 times
3 Replies
Our course uses > The Economics of Money, Banking and Financial Markets
Replies
Answer verified by a subject expert
MeelaMeela
wrote...
#1
Top Poster
Posts: 5283
Rep: 66 0
7 years ago
Sign in or Sign up in seconds to unlock everything for free
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.
1

Related Topics

valputin Author
wrote...
#2
7 years ago
Perfect answer, thx
Our course uses > The Economics of Money, Banking and Financial Markets
wrote...
#3
7 years ago
Slight Smile Good luck with the rest
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  256 People Browsing
 264 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Live Chat
Related Images
  
 272
  
 296
  
 73