Financial Intermediaries Reduce the Problems in Lending Associated with Information

question 14

Multiple Choice

Financial intermediaries reduce the problems in lending associated with information asymmetries by all of the following except:

• A)Collecting and processing standardized information
• B)Screening applicants to be sure they are creditworthy
• C)Monitoring loan recipients to be sure the funds are used properly
• D)Charging interest rates high enough to discourage undesirable borrowers

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Definitions:

Expected Value

is a statistical measure that calculates the average outcome of a random variable over a large number of trials.

Standard Deviation

A statistical measure that quantifies the variability or spread of a dataset around its mean value.

Deviation

Difference between expected payoff and actual payoff.

Expected Value

The weighted average of all possible values of a random variable, with the weights being the probabilities of each outcome.