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:

Organizations

Groups or assemblies of individuals structured to achieve particular aims or goals through collective efforts and established processes.

Person Development

The process of self-improvement through activities that enhance one’s skills, knowledge, and personal qualities, often contributing to the achievement of personal and professional goals.

Broad Themes

General, wide-ranging subjects or ideas that are common across or central to various discussions, studies, or areas of inquiry.

Human Relations Skills

Abilities essential for effective interpersonal interactions, such as communication and empathy, that contribute to successful teamwork and leadership.