Money, Banking, and Financial Markets Chapter 11 The Economics of Financial Intermediation 1. Discuss the role of financial intermediaries. Write out the five functions performed by financial intermediaries. Indicate which of the roles are designed to reduce transactions costs and which deals with reducing information costs. 2. Define asymmetric information, adverse selection, and moral hazard. 3. Discuss the ways financial intermediaries try to reduce adverse selection when deciding when borrowers should receive funds from a loan. 4. After a loan has been made to a borrower, what can financial intermediaries do to reduce moral hazard