Financial Institutions (FIs) such as Commercial Banks (CBs) assist in providing

Question

Financial Institutions (FIs) such as Commercial Banks (CBs) assist in providing a smooth economy by resolving certain information asymetries while acting as an intermediary. An information asymetry exists when one party to a transaction has more information than the other party. For instance, when one party agrees to sell a house to another party, the seller usually (but not always) has more familiarity with the property and, therefore, has more knowledge in the transaction than the buyer.

1) What are the information asymetries regarding loans?

2) What are the information asymetries exist in the liabilities of the FIs such as deposits?

Explanation / Answer

1)

2)

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