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- Why do loan sharks worry less about moral hazard in connection with their borrowers than some other lenders do?In what way might consumer protection regulationsnegatively affect a financial intermediary’s profits?Can you think of a positive effect of such regulationson profits?What do the authors mean when they state that financial intermediaries can achieve economies of scale with respect to transaction costs? A. Intermediaries can spread transaction costs across larger transaction volumes, so the cost per unit is lower. B. Intermediaries tend to specialize in certain types of transactions, so their costs are lower because they operate at lower volume than other types of financial firms.
- Would you recommend the adoption of a system ofdeposit insurance, like the FDIC in the United States, ina country with weak institutions, prevalent corruption,and ineffective regulation of the financial sector?Explain the functions of financialintermediaries?What can emerging market countries do to strengthenprudential regulation and supervision of their bankingsystems? How might these steps help avoid futurefinancial crises?
- Provide a real-world example of "Adverse Selection" in a business or financial transaction.what are four reasons why it is necessary to regulate banks, within the context of the COVID pandemic?Why would haircuts on collateral increase sharply during a financial crisis? How would this lead to fire saleson assets?