Which Institutions Took Advantage of Information Asymmetry in the Sale

question 50

Multiple Choice

Which institutions took advantage of information asymmetry in the sale of sub-prime loans to investors in mortgage-backed securities?

• A)The ratings agencies.
• B)The Wall Street investment banks.
• C)The Federal Reserve.
• D)AIG (America's largest insurer).
• E)None of these.

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Definitions:

Inventory System

Methods and procedures used to track materials, work-in-progress, and finished goods from acquisition through sale.

Weighted-Average

A calculation method where different data points are given different weights, often used in inventory valuation and cost accounting.

Ending Inventory

The final amount of goods available for sale at the end of an accounting period.

Perpetual System

An inventory system that continually updates inventory records and cost of goods sold after each purchase or sale.