Which of the Following Is an Example of Asymmetric Information

question 6

Multiple Choice

Which of the following is an example of asymmetric information leading to a "lemons" market?

• A)A marketing manager at a firm cannot determine with certainty,the volume of sales in the next quarter.
• B)An employee does not know the rate of inflation in the coming year and so cannot ascertain his real wage.
• C)The seller of a used laptop knows more about the true condition of the laptop than the buyer.
• D)A manager,who does not own the firm,does not have an incentive to ensure its profitability.
• E)A trader,who has access to non-public information about a company,makes profits by trading on that information.

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Definitions:

Treasurer

An executive role in a company or organization, responsible for managing the institution's treasury and overseeing its financial and investment strategies.

Controller

A chief accounting officer of a company, responsible for overseeing all accounting operations including financial reporting and budgeting.

Capital Budgeting

The process a business undertakes to evaluate potential major projects or investments, analyzing the cash inflows and outflows to determine whether the returns meet a sufficient target benchmark.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which finances its overall operations and growth.