Stockbrokers monitor the companies after investing funds in them, in order to Co

Question

Stockbrokers monitor the companies after investing funds in them, in order to Commercial banks screen their borrowers before a loan can be approved, in order to Money market mutual funds combine the savings of many individuals, in order to This Question: 4 pts 9 of 25 (7 complete) Consider the following evens: Stookbrokers monitor the companies after investing funds in them, in order to lower management costs Commercial banks screen their borrowers before a loan can be approved, in order to limit moral hazard Money market mutual funds combine the savings of many individuals, in order to limi t adverse selection Click to select your answerls).

Explanation / Answer

1. Limit moral hazard

Moral hazards: This implies taking the advantage of asymmetric information after transaction. For example, if someone has car insurance he may commit theft by getting his car stolen to reap the benefits of the insurance.

2. Limit adverse selection

Adverse selection: This implies taking the advantage of asymmetric information before transaction. For example, a person may be more eager to purchase life insurance due to health problems than, someone who is healthy.

3. Lower management costs

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