Possession of information by one party in a financial transaction but not by the other party is :financial intermediation .moral hazard .asymmetric information .adverse selection
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Possession of information by one party in a financial transaction but not by the other party is
:financial intermediation
.moral hazard
.asymmetric information
.adverse selection
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- financial markets that function well: a. increase the ease of converting common stocks into bonds b. reduce riskiness of most assets continually c. continually increase the liquidity of most assets d. including available information in asset prices“In a world without information costs and transactioncosts, financial intermediaries would not exist.” Is thisstatement true, false, or uncertain? Explain your answer.In 2008 there was an increase in uncertainty about the quality of structured financial products that were backed by mortgages (MBS - mortgaged backed securities). So that the market for these securities dried up (became less liquid). What policies the government could do to jump start (improve liquidity of) the market
- Which of the following is not a function of financial intermediaries? A Deal with asymmetric information problems B. Reduce the exposure of investors to risk C. Promote adverse selection after transactions. D. Lower transaction costsHow does a general increase in uncertainty as a resultof the failure of a major financial institution lead to anincrease in adverse selection and moral hazard problemTreasury securities are less liquid than debt securities issued by a small firm. true or false
- How does a bank adjust its pricing of a loan with high default risk? Use average historical cost of funds instead of marginal cost. Add 1.5% to the applicable cost irrespective of the risk level. Add a default risk premium to the applicable weighted marginal cost of funds. None of the above.Which statement is incorrect related to financial intermediaries (institutions)? a. They are firms that specialize in financial intermediation - a process of borrowing funds from SSUs and lending such funds to the DSUs. b. The main objective of financial intermediaries is to convert savings from SSUs into investments. c. They are the biggest investors in equity securities in the PSE d. They offer the highest returns and lowest risks when compared to alternative investments available to SSUs. e. none of the aboveWhich of the following is one of the uses of financial instruments? means of payment store of value transfer of risk All of the above None of the above
- Discuss the Contribution of Stephen Ross(1976) to the theory of Financial Economics and identify the risk factors (in his model) which are applicable in our economyWhy do banks choose to securitise their assets? Explain how securitisation may exacerbate the asymmetric information problems in the financial markets. Discuss the role of mortgage-backed securities in the financial crisis of 2007-2008Which of the following best defines a financial intermediary? a collection of stocks and bonds issued to investors an asset sold by a company which entitles the buyer to partial ownership a claim by a buyer to a future payment by a seller a financial institution that transforms investor funds into financial assets
