Quiz AFM 121 sec 05 with answers

Quiz AFM 121 sec 05 with answers - Quiz #1 January 19th,...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Quiz #1 January 19 th , 2012 AFM 121 Section 5 Andrew Ecclestone, CFA Name:_____________________ Student #:__________________ Question Score 1 2 3 Total Question 1 (5 marks) a) List two roles of Financial Intermediaries. 1. Liquidity Provision and Economies of Scale Expertise and size of intermediaries allows them to complete transactions at a lower cost Provide liquidity services such as providing chequing accounts for ease of paying bills or credit cards for ease of purchase 2. Mitigation of Adverse Selection Costs Information asymmetries arise between borrowers and lenders, managers of the firm know more about the firm’s prospects than investors A firm’s prospects is communicated to investors via financial statements, media releases and other commentary Ability to interpret and evaluate firm communications varies across investors
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Uniformed investors may elect not to invest due to adverse selection costs or may misallocate savings at an inappropriate price 3. Mitigation of Moral Hazard Moral hazard problems arise due to information asymmetries after the investment is made. Payoffs between firm managers and investors may not always align.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/15/2012 for the course AFM 121 taught by Professor Mr.tom during the Winter '11 term at Waterloo.

Page1 / 3

Quiz AFM 121 sec 05 with answers - Quiz #1 January 19th,...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online