Successful Financial Intermediaries Have Higher Earnings on Their Investments Because

question 47

Multiple Choice

Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks,thereby reducing losses due to

• A) moral hazard.
• B) adverse selection.
• C) bad luck.
• D) financial panics.

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Definitions:

Retained Earnings

The portion of a company's profits that is held or retained and not distributed as dividends to shareholders, often reinvested in the business or used to pay off debt.

Cash Inflow

The total amount of money being transferred into a business, often from operations, investments, or financing.

Issue Common Shares

The process by which a corporation sells new shares to investors to raise capital.

Ceases Operations

The process when a business stops its principal business activities and ends its operations.