Section A Question 1 a) What is adverse selection and what is moral hazard? Explain each with one example. (4 marks) b) Explain how the following ways can help deal with problems arising from information asymmetry. i. Employers invite job applicants to an interview. ii. A lender requires a borrower provides collateral for a personal loan. iii. Under Financial Service Compensation Scheme (FSCS), individual depositors can have their bank deposit protected up to E85,000. (12 marks) c) Do you prefer to lend money to your friends, or to a stranger? Why?- (5 marks) d) Why are loan sharks less worried about lending money to strangers? (4 marks) Question 2 a) Explain the roles of 'subprime lending' and 'credit rating agencies' in bringing forth the 2008-09 financial crisis. (12 marks) b) How might a financial crisis weaken the fund channelling function of the financial system? (6 marks) c) Discuss whether the 'Too Big to Fail' policy helps prevent a financial crisis or pave the way for the crisis. (7 marks)Section B Question 3 a) Explain the key differences between bonds and equity, and what the benefits and drawbacks are to a company by raising capital via either means. (6 marks) b) "Technology has changed financial markets beyond all recognition, and largely for the better." Critically analyse this statement, with a particular emphasis upon the effect technology has had upon accessibility, regulation, and the way money is managed and markets are traded. (12 marks) c) "Fundamental analysis tells you what to trade, technical analysis tells you when to trade it." Explain the extent to which you agree with this statement, please include an explanation of the key features of either approach. (7 marks) Question 4 a) "Despite varying greatly in appearance, financial crises down the ages appear often to share some common characteristics and causes." Evaluate this statement with reference to at least 3 historic financial crises. (10 marks) b) "Hedge funds have done far more good than harm as their influence on markets and society has grown." Discuss the arguments for and against this statement and indicate which side of the argument you favour and why. (8 marks) c) With reference to at least one 21st century scandal, explain whether you feel market participants now self-regulate more effectively than they did at the turn of the century. (7 marks)