Financial intermediaries have developed expertise in monitoring the parties they lend to,thus reducing losses due to
A)moral hazard.
B)adverse selection.
C)free-riding.
D)economies of scope.

Question

Quizplus · Accepted Answer

Financial intermediaries have developed expertise in monitoring the parties they lend to, which reduces losses due to moral hazard. Moral hazard refers to the risk that a borrower may engage in risky behavior or shirk their responsibilities once they have received funding. By monitoring borrowers, financial intermediaries can mitigate this risk and reduce their losses. Adverse selection refers to the risk that borrowers with the highest risk of default are more likely to seek funding, while free-riding refers to the risk that borrowers may take advantage of funding without paying it back. Economies of scope refer to the cost advantages that firms can achieve by producing multiple products or services together.

Financial Intermediaries Have Developed Expertise in Monitoring the Parties They