Why does "adverse selection" exists in the case when a bank makes loans to individuals? Why does "moral hazard" exists in the case when a bank makes loans to individuals?

Q: After a loan has been made to a borrower, what can financial intermediaries do to reduce moral…

A: Nation in which an economic actor has an incentive to increase its risk exposure because it does not…

Q: Why do loan sharks worry less about moral hazard in connection with their borrowers than some other…

A: The person who charges a very high-interest rate when lending is known as loan sharks. Moral hazard…

Q: Which of the following scenarios best illustrates the concept of "Moral Hazard" in the context of…

A: Moral hazard can be defined by the risk that the concerned party hasn't mentioned in the contract in…

Q: In the PowerPoint presentation, what did we learn about "shadow banking?"   Multiple Choice   This…

A: The objective of the question is to understand the concept of 'shadow banking' as presented in a…

Q: Automated teller machines (ATMs) expand bank services, especially since you can withdraw funds from…

A: The rapid digitization of financial transactions has empowered individuals to withdraw money…

Q: During the recession of 2008, it was suggested that some banks were “too big to fail” (TBTF). Under…

A: "Too big to fail" refers to a company or industry that is seen to be so established in the financial…

Q: A bank can make profit by: a)borrowing money from the government at 0% interest. b)giving you a…

A: Banks generate profits primarily through the intermediation process, where they accept deposits from…

Q: At which stage money laundering is easy to detect?

A: Money laundering refers to an illegal process of producing a huge amount of money that is generated…

Q: Would usury laws help or hinder resolution of a shortage in financial markets?

A: Usury law is implemented by the government pertaining to interest on the loans taken by the…

Q: Briefly discuss two (2) risks that a bank faces when it takes in short term savings deposits and…

A: Banks always lend using deposits made by the customers. But it is not recommended to lend using…

Q: Identify two financial intermediaries. What are their respective functions? What are their major…

A: The middlemen in the financial transactions between borrowers (firms or individuals) or lenders…

Q: If you deposit a $300 check in your checking account and the required reserve ratio is 10 percent,…

A: Given  Required Reserve Ratio = 10%  Deposits = $300

Q: please explain why the statements are false

A: Given: Own price elasticity of demand=0

Q: Should bankers be empowered by law to inquire into the sources of their customers' deposit?

A: Every day, bankers, often referred to as retail bankers, work with customers by helping them with…

Q: Which of the following statements is correct? Banks that are too big to fail' are careful not to…

A: Banks are regulated by government authorities to make sure their stability, solvency, and compliance…

Q: Which of the following is NOT TRUE about Insurance companies? * a. They are non-depository…

A: When product or a particular service is manufactured, cost  takes place and process of business…

Q: How do information asymmetries affect financing decisions?

A: Answer - Asymmetric Information - This is th situation where one individual, firm or even country…

Q: The demanders of funds participate in the financial market to earn profit. * True or False??

A: Individuals and businesses who save money and make financial investments are the suppliers of funds…

Q: Discus any 3 types of motives for holding money

A: Money demand manifests the amount of currency units that domestic residents hold for meeting their…

Q: discuss four factors that can cause financial intermediation to fail.

A: The procedure of transferring money from economic actors with excess funds to those who want to use…

Q: In general, ordinary people only know that bank products and services are limited to conventional…

A: Islamic banking refers to a banking structure that follows the rules of Shari'ah (Islamic law). The…

Q: What is financial repression and why does it exist?

A: Financial Repression refers to the measures through which government borrows funds from private…

Q: Why did new technology make it harder to enforcelimitations on bank branching?

A: There are many banks that share new technologies quite often like electric banking facilities, so…

Q: What is the effect of money laundering in the economy? Explain your answer.

A: Money laundering refers to the illegal process of making large amounts of money, usually generated…

Q: Can a financial market be complete and allow for arbitrage opportunities at the same time?

A: Arbitrage is a speculation technique where a financial backer all the while trades a resource in…

Q: Why some economists worry that there could be "moral hazard" risk after US government bailed out…

A: In economics the moral hazard refers to a situation where in one party engages in risky behavior…

Q: Reasons money appear as non-neutrality? Explain.

A: Neutrality of money explains about the concept that money is considered to be a neutral factor in…

Q: Welfare banks are check-cashing stores. T or f

A: Welfare banks are used to cash the paychecks.

Q: How does Adverse Selection potentially affect a Bank and how can a bank overcome (some of) the risk…

A: Adverse selection occurs when buyers have better information than sellers, and this can distort the…

Q: The problem of adverse selection helps to explain.. A. Why banks prefer to make loans unsecured. B.…

A: In general, the term “adverse selection” refers to the situation in which sellers have knowledge…

Moral Hazard

The moral is a person's behavior towards himself /herself, society, organization, and others. Hazard is something that is happening and is not good. A person may be morally good or bad. It depends on his attitude, ethics, integrity, and values. A person may have the highest reverence for money to that for the truth. In this case, the person may lie and it is said that the person is morally bad.