Explain in detail how an improvement in the national identification system can reduce adverse selection and moral hazard in the banking sector. Explore all possible scenarios
2. Explain in detail how an improvement in the national identification system can
reduce adverse selection and moral hazard in the banking sector. Explore all
possible scenarios
3. State and explain the three motives of holding money according to Keynes
ii. Show that interest rate has an impact on the income velocity of money. iii Distinguish between Fisher’s quantity theory and Keynesian’s theory of
money
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When symmetric information is lacking before a transaction between a buyer and a seller, adverse selection takes place. A scenario in which sellers have knowledge that buyers do not, or vice versa, regarding a certain feature of product quality, is referred to as adverse selection. In other words, it is an example of asymmetric information being used against the user. Asymmetric information also known as information failure occurs when one participant in a transaction has more in-depth knowledge of the relevant facts than the other party. The possibility that one party did not enter into the agreement in good faith or gave incorrect information about its assets, obligations, or credit standing is known as moral hazard. Moral hazard may also refer to a party's incentive to take exceptional risks in an effort to benefit before the contract is settled. Any time two parties reach an agreement, there is a possibility for moral risks. Every party to a contract may be able to benefit from going beyond the guidelines outlined in the agreement.
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