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 Shares

represent units of ownership interest or equity in a corporation, giving holders voting rights and a share in the company’s profits through dividends.

Regulatory Restrictions

Rules or limitations set by a regulatory authority that guide or constrain actions within a specific area or industry.

Transfer of Consideration

The process by which payment is made, or value is exchanged, between parties in a transaction, often related to the acquisition of assets or services.

Cost Method

An accounting method used for investments, where the investment is recorded at its acquisition cost, without recognizing the investor's share of the investee's profit or loss until dividends are received.