F7

Question 1

agency theory

Answer 1

how asymmetric information affect behaviour

Question 2

adverse selection

Answer 2

the one that is most likely to produce bad outcome is more likely to take a deal
knows more than the other part of the deal

Question 3

moral hazard

Answer 3

taking more risks after the deal is already done cause consequences will not be felt

Question 4

lemon problem+solution

Answer 4

buyers don’t know the quality and just want to pay average price
no good quality will be bought or sold

Question 5

solution lemon problem/adverse selection

Answer 5

pay for information(problem:free riders)
government require information
collateral or net worth

Question 6

principal-agent problem

+solution

Answer 6

ownership and management separated
solution:
monitoring
incentives
government regulations
ratings

Question 7

moral hazard + debt problem

+solution

Answer 7

loan takes is not responsible for outcome and takes more risks
solution:
net worth or collateral
covenants to force behavior, give information or keep collateral value

Question 8

conflict of interest

Answer 8

one person/institutions has several interest and therefore conceal information or gives misleading information
makes the market less effective