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homework - Michael Samuels Finance 127 Wilson Homework 1...

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Michael Samuels 2/7/10 Finance 127 Wilson Homework 1 1)What issue is he writing about here? Smith is describing the problem of Asymmetric Information. Asymmetric Information is disconnecting information between the owners, and their plans and ideas, and the general public, or stockholders. The main sub-issue associated with asymmetric information, is entitled the agency problem. The agency problem exists when the specific goals of the managers are unaligned with those of the shareholders. Often times managers are willing to invest in riskier investments or make less sure decisions because it isn’t their own money tied into the company. Smith warns of the dangers and fears associated with such a situation “The Wealth of Nations” 2)Is he still correct for modern financial market conditions? I believe he is correct in theory for modern financial markets but due to the current state of our financial system, it may no longer be as applicable to present times. Current regulations prohibit such malicious acts in the modern system. The constant government
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