A Financial Crisis Occurs When an Increase in Asymmetric Information

question 5

Multiple Choice

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system

• A)causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently.
• B)allows for a more efficient use of funds.
• C)increases economic activity.
• D)reduces uncertainty in the economy and increases market efficiency.

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Definitions:

Common-Law Countries

Countries that follow a legal system originating in England, characterized by the doctrine of precedent, under which the outcomes of legal proceedings can be influenced by previous court decisions.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that serve as a global framework for preparing financial statements.

Accounting Standards

Rules and guidelines set by regulatory bodies that determine the framework for financial reporting and accounting practices.

Private Companies

Companies owned by individuals or groups that are not traded publicly and whose shares are not available on the stock market.