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- Discuss the implications for firms of asymmetric information when potential investors can not distinguish ‘good’ from ‘bad’ firms.Describe the two problems arising from asymmetric information, namely: Adverse selection; and Moral hazard.Provide a real-world example of "Adverse Selection" in a business or financial transaction.
- After a loan has been made to a borrower, what can financial intermediaries do to reduce moral hazard?Asymmetric information makes it hard for investors to sell securities. Banks, meaning both investment and commercial, specialize in reducing asymmetric information. What methods do they have for reducing information asymmetries? Be sure to specify if the methods are designed to reduce the problems of adverse selection or moral hazard.How does private information about consumer types impact pricing strategies and market outcomes in the context of asymmetric information in economics?
- Describe two empirical studies that suggest demonstrate the market effects of asymmetric informationList three different ways that a risk-averse person can reduce financial risk.If you are the financial analyst hired to look into credit risk of the hypothetical corona groceries before vaccine bank will lend them a loan, what will you do to provide vaccine bank with the information needed by them.