Lemon’s problem occurs when due to lack of complete information,
the buyer makes an incorrect or inefficient decision.
In case of market for financial instruments, while purchasing shares of a company for investment purposes, the buyer or investor has less information about the company’s future and inside information. The company owners and management has more information how much debt they are in and how they would be performing in the future. This lack of symmetric information can lead to investors making an inefficient purchase, which can lead to losses for him.
In such cases, financial intermediaries play an important role by making sure complete and bias-free information is passed on between parties and there is minimal scope for incomplete information. This helps the investors make a wise decision as to where to invest and which company shares to buy and which to sell.
2. Explain the "lemons problem” in terms of financial instruments and the role of financial intermediaries...
01. There are many different types of financial intermediaries. Outline the role of financial intermediaries, their functions in financial markets and explain how they differ and what they have in common. Justify how the financial intermediaries provides a drive for the economic system of a country.
please answer week 2 question w e l l on the role of financial intermediaries and bank management. Offer an example of adverse selection or moral hazard in markets. Consider insurance, employment, banking and other areas. Week 2: Give an example of an asymmetric information problem that you believe requires or does NOT require government intervention Explain your selection! Week 3: Choose one of your classmate's examples from week 1 or 2. Discuss how to heet enth-
As an individual investor in Malaysia, you believe the main index of Malaysia stock market, FBM KLCI (FTSE Bursa Malaysia KLCI) would decline further in the year of 2022. Given strong belief in that market trend, you aim to make a significant capital gain from the financial exchanges in Malaysia. suggest TWO (2) suitable financial instruments (ie any specific equity-based, debt-based or neither debt-based nor equity-based of financial instruments) and explain in detail on how you would apply that financial...
There are various types of financial institutions and intermediaries such as commercial banks, investment banks, mutual funds, hedge funds, pension funds, insurance companies, etc. Why are there so many different financial intermediaries other than commercial banks? How does an investor’s risk attitude and/or wealth play a role in his/her selection of a financial institution or intermediary? If you were an investor seeking moderate return for your investment, how would you select a financial institution or intermediary? Choose one and explain...
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Do you think the lemons problem would be more severe for stocks traded on the Toronto Stock Exchange or those traded over-the-counter? Select the best answer O A kis more severe for over the counter trades because getting information about these firms is more difficult, making a harder for investors to figure out whether the firm is of good quality or is a lemon OB. tis less severe for firms trading on the Toronto Stock Exchange because they are typically...
only number 3 question, please. 2) Consider two financial instruments: a one-year Treasury bill and a 15-year mortgage. Which is more liquid? Brienly deseribe why. 3) In the context of the model economy, there are large and small unexpected liquidity shocks. How would you explain the difference between a large and small liquidity shock?
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Suppose you had a client who never used a network. Explain, in everyday terms, the role of network servers and clients.
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