Question Details

[solution] » Financial Institutions, Moral Hazard, Adverse Selection,

Brief item decscription

Step-by-step solution file


Item details:

Financial Institutions, Moral Hazard, Adverse Selection,
More:

Financial Institutions, Moral Hazard, Adverse Selection, Regulation of Financial

Institutions

Financial intermediaries as part of the financial system are very important for a vibrant

economy to move funds from surplus units to the deficit units in order to finance a

productive investment. The financial system includes banks, insurance companies, mutual

funds, stock and bond markets, and so on. All of these are regulated by government.

However, the role of information in the financial system plays a critical part in the transfer

of funds.

You are a manager of a financial institution that gave a loan to a large corporation involved

in trading in the energy market. It has a successful operation, making it among the largest

corporation at the time. However, the company crashed and came with large amounts of

losses. You as a manager found out that the company has been involved in a complex set

of transactions by which it was keeping substantial amounts of debts and financial contracts

off of its balance sheet and you were not aware of these transactions. Even after securing

additional new financing from other institutions, the company was forced to declare

bankruptcy and large numbers of people were laid off at the time that the economy was

suffering from a downturn in economic activities. You as a manager are involved in

answering several questions in order to minimize the chance of defaults on your loans.

a. What is moral hazard? Do you think in this case moral hazard was an issue, or we need

to have more information? Explain.

b. In case this was an example of moral hazard, explain how the manager could reduce

the problem.

c. What are the adverse economic consequences of moral hazard?

d. What is asymmetric information?

e. Do you think that further government regulations could reduce the existence of

asymmetric information of financial institutions? If so, what type of regulation do you

suggest for this case?

 







About this question:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Feb 21, 2020

PRICE: $24

Solution~000603942.zip (18.37 KB)

Buy this answer for only: $24

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free copy (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card. All your purchases are securely protected by PayPal.
SiteLock

Need a similar solution fast, written anew from scratch? Place your own custom order

We have top-notch tutors who can help you with your essay at a reasonable cost and then you can simply use that essay as a template to build your own arguments. This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student. New solution orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.

Order Now