Analysis of Adverse Selection Indicates That Financial Intermediaries,especially Banks

question 83

Multiple Choice

Analysis of adverse selection indicates that financial intermediaries,especially banks

• A)have advantages in overcoming the free-rider problem,helping to explain why indirect finance is a more important source of business finance than is direct finance.
• B)despite their success in overcoming free-rider problems,nevertheless play a minor role in moving funds to corporations.
• C)provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations which rely to a greater extent on the new issues market for funds.
• D)must buy securities from corporations to diversify the risk that results from holding non-tradable loans.

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Definitions:

NAFTA

The North American Free Trade Agreement, a treaty among the United States, Canada, and Mexico to reduce trading barriers and establish a trilateral trade bloc in North America.

Customer Needs

The requirements or desires that consumers expect products or services to fulfill.

Strategy Formulation

The method of determining the course of an organization and deciding on the distribution of its resources to follow that plan.