If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of a. costly state verification. b. free-riding. c. moral hazard. O d. adverse selection.
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- Which type of information asymmetry explains why bad credit risks are more likely to seek bank loans? A. Moral hazard B. Adverse selection C. Principal-agent problemExplain the problems of adverse selection and moral hazard caused by asymmetricinformation. How can financial intermediaries alleviate those problems?Could efforts to avoid conflicts of interest lead an investment bank to provide poor service to a client? Explain your answer.
- The following factor does not contribute to fraudulent activity? Select one: O a. Bad debt expense O b. Opportunity O c Financial pressure O d. Rationalization O e. None of the answers are correctRole of Central Banks and Moral Hazards The potential answers for moral hazard. How might moral hazard be forestalled or mitigated?The chartering process is especially designed to deal with the reduce the problem. O adverse selection: adverse selection O adverse selection; moral hazard O moral hazard; adverse selection O moral hazard; moral hazard O none of these answers problem, and regular bank examinations help to
- Which of the following arguments supports the view that regulation is not necessary, particularly to the extent that it currently exists? Select one: a. Markets for information are not efficient and therefore produce a sub-optimum amount of information, given the problem of 'free riders'. b. Accounting information is like any other good, and people will be prepared to pay for it to the extent that it has a use. c. Investors need protection from fraudulent organisations that may produce misleading information. d. Information asymmetry exists because not everyone has the same power over resources to obtain the information they need.1) If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of A) adverse credit risk. B) adverse selection. C) moral hazard. D) lemon lenders.2. Substantial amount of credit losses is due to poor loan monitoring. In view of this, suggest how might one safeguard a bank's interest when providing loans.
- Moral hazard or its reduction explain the following except: O A. Collateral requirements for loans. O B. The Enron and Tyco scandals. O C. The success of zero commission trading. O D. Covenants requiring borrowers to provide information periodically.All of the following may be considered causes of the “dark side” of credit except: Group of answer choices B. Operational issues that affect credit assessments can have a systematic effect on the whole consumer portfolio. D. Historical data tends to be consistent and can lead to accurate forecasts. A. Tendency of consumers to default is a product of changing legal and social systems. C. Sharp changes in the economic environment, such as a deep recession.Which of the following is not likely cause of Default? Select one: O aLack of compliance with loan policies O b.Inadequate controls over loan officers c.Over concentration of bank lending in certain sectors or areas Od.Lending in familiar markets Oe.All of the above