How do commercial banks solve asymmetric information problems?
What will be an ideal response?
By collecting information to reduce the information asymmetry: screening loan applicants and monitoring borrowers once the loan is approved. Loan assets are retained, rather than sold to third parties, so information accumulates over time and, possibly, over several loans to a single borrower. The bank's "investment" in screening and monitoring allows it to profit from low-risk lending and to provide credit at a lower cost than the borrower can get from a new lender, so the relationship is long-term and mutually beneficial.
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The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the ________.
A. discount rate B. prime rate C. term auction rate D. real interest rate
One thing we can do to reduce trade imbalance in the United States would be to
A. push down the value of the dollar relative to other currencies. B. raise the prices of U.S. exports. C. raise consumption in the United States. D. lower savings in the United States.
If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n)
What will be an ideal response?
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
A) aspirin is a normal good. B) the demand for aspirin is inelastic. C) aspirin has few substitutes. D) the demand for aspirin is elastic.