Financial intermediaries can manage the problems of adverse selection and moral hazard. a. They can reduce adverse
Question:
Financial intermediaries can manage the problems of adverse selection and moral hazard.
a. They can reduce adverse selection by collecting information on borrowers and screening them to check their creditworthiness.
b. They can reduce moral hazard by monitoring what borrowers are doing with borrowed funds.
c. In the end, the vast majority of firms’ finance comes from internal sources, suggesting that information problems are too big for even financial intermediaries to solve.
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Related Book For
Money Banking And Financial Markets
ISBN: 9781260226782
6th Edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
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