The Authors' Analysis of Adverse Selection Indicates That Financial Intermediaries

question 63

Multiple Choice

The authors' analysis of adverse selection indicates that financial intermediaries in general,and banks in particular (because they hold a large fraction of nontraded loans) ,

• A) have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than direct finance.
• B) play a greater role in moving funds to corporations than do securities markets as a result of their ability to overcome the free-rider problem.
• C) provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations, which rely to a greater extent on the new issues market for funds.
• D) all of the above.
• E) only A and B of the above.

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Definitions:

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Direct Control

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Viktor Orbán

Viktor Orbán is a Hungarian politician who has served as the Prime Minister of Hungary in various terms since 1998, known for his nationalist and conservative policies.

Anti-Semitic

Exhibiting or encouraging hostility, prejudice, or discrimination against Jews as an ethnic, religious, or racial group.