TUTORIAL QUESTION: MONEY, BANKING AND FINANCIAL MARKETS COURSE

As a manager of Bank GOFT, you are recruiting new staff. However, there are too many job applicants and they are very competitive. The possibility of asymmetric information problems in staff selection is most likely to occur. Based on this scenario:

i. Define asymmetric information, adverse selection, and moral hazard.

ii. Describe an example of adverse selection that can occur when selecting the applicants.

iii. Describe an example of a moral hazard that can occur after selecting the applicants.

iv. How does the lemon problem occur in staff recruitment?