Question

6. Financial intermediaries Suppose Dina comes into a large sum of money and decides to lend it out to earn interest on it. Because she lacks the expertise to evaluate the credit risks of potential borrowers. she decides to deposit the money in her local bank, a financial intermediary. This is an example of how financial intermediaries can help solve the problem of:

Answer 1

Adverse selection

Step-by-step explanation:

Adverse selection is when parties to a transaction do not have the same amount of information. Due to this disparity, one party might use this lack of information to their benefit.

Due to the fact that dina doesn't have enough information, she might choose the wrong borrower that would default. She would lose while the borrower would gain.

I hope my answer helps you