Because There Is an Imbalance of Information in a Lending

question 23

Essay

Because there is an imbalance of information in a lending situation,we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.

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Definitions:

Negative Public Attention

Adverse publicity or scrutiny from the media or public that can affect a company's reputation and business.

Celebrity Spokespeople

Famous individuals who are paid to promote a brand, product, or service, leveraging their fame to influence potential buyers.

Breaching Contracts

Occurs when one party in a contractual agreement fails to fulfill their obligations, leading to a violation of the contract's terms.

Firm Image

The public perception or reputation of a business, shaped by its branding, marketing efforts, and customer experiences.