Th4.4: ^^ Asymmetric Information Flashcards
1
Q
One problem with the financial sector is that financial institutions often have more…
A
knowledge compared to their customers - both consumers and other institutions
2
Q
This means financial markets can…
A
sell customers products they do not need, are cheaper elsewhere or are riskier than the buyer realises
3
Q
What is an example of this?
A
the Global Financial Crisis - selling subprime mortgages but advertising them all as prime mortgages
4
Q
There can also be asymmetric information between financial institutions and regulators…
A
the institutions have little incentive to help regulators understand their business and this causes difficulties for the regulators so may allow institutions to undertake harmful activities
