Asymmetric information is the situation in which one party to an economic or financial transaction has better information than the other party, which results in two problems: adverse selection and moral hazard.

• Select a financial institution or market and discuss the causes of asymmetric information.
• Describe real-world examples of adverse selection and moral hazard problems for your institution/intermediary or market.
• Evaluate the impacts of adverse selection and moral hazard problems on your financial institution/intermediary or market.
• Discuss a principal-agent problem in your financial institution/intermediary or market. A principal-agent problem is a moral hazard problem between managers and shareholders.
• Analyze whether your financial institution/intermediary or market can reduce the adverse selection and/or moral hazard problems.