Asymmetric Information Before a Transaction Takes Place Generates the Problem

question 152

Multiple Choice

Asymmetric information before a transaction takes place generates the problem of

• A) bank runs.
• B) irrational behavior.
• C) moral hazard.
• D) adverse selection.

---

Definitions:

Diversified Portfolio

An investment portfolio that contains a mix of assets with different characteristics like stocks, bonds, and commodities to minimize risks.

ETFs

Exchange-Traded Funds, investment funds that are traded on stock exchanges much like stocks and typically track an index, a commodity, bonds, or a basket of assets.

Russell 2000

An index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which represents the entire U.S. stock market.

Diversified Portfolio

A financial approach that diversifies holdings over multiple asset types to mitigate risk.