Topic: Money And Banking

Topic: Money And Banking

Topic: Money and Banking

Pages: 4

Sources: 4

Format: APA


Respond to each of the following questions.

1.      Explain the principal-agent problem as it pertains to equity contracts.
2.      Why does the free-rider problem occur in the debt market? Provide one (1) supporting fact.
3.      Your bank has the following balance sheet.

Reserves- $50 million
Securities- $50 million
Loans- $150 million

Checkable deposits-$200 million
Bank capital-$50 million

If the required reserve ratio is 10%, describe two (2) actions that the bank manager should take if there is an unexpected deposit outflow of $50 million?

4.      How can specializing in lending help to reduce the adverse selection problem in lending? Provide two (2) examples to support your response. 

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