Asymmetric information can lead to widespread collapse of financial intermediaries,referred to as a
A) bank holiday.
B) financial panic.
C) financial disintermediation.
D) financial collapse.

Question

Quizplus · Accepted Answer

Asymmetric information refers to situations where one party in a transaction has more information than the other party. In the context of financial intermediaries, such as banks, if depositors or investors become aware that the financial institutions have hidden problems or risks due to asymmetric information, they may all try to withdraw their money at the same time leading to a financial panic. This is because the financial intermediaries may not have enough liquidity to satisfy all the withdrawal demands at once, leading to a widespread collapse of the financial system. Therefore, B (financial panic) is the best choice.

Asymmetric Information Can Lead to Widespread Collapse of Financial Intermediaries,referred