1 mishkin and eakins argue that many of the structural aspects of the financial system can...

1 mishkin and eakins argue that many of the structural aspects of the financial system can be explained in the terms of transactions cost and asymmetric information problems. Define asymmetric information and the problems that it creates for financial markets. explain how the structure of the sierra leone financial system can be explained by the problem of asymmetric information

Expert Solution

In an ideal financial system and services, financial services providers would like to have all the information to provide good services to society at affordable price, any asymmetries in such information may lead to failure of system.

Information asymmetries or Information failure refer to the fact that required information does not flow smoothly. Many people have access of additional information in comparison to others. For understanding It is very important to know about the borrower while lending money. it is important to know about the spending of the borrowed money in a way that able to repay the loan. In case of asymmetries in such information may create failure of financial system.

The structure of the Sierra Leone requires a strong financial system for improvement in economic a management and governance to reach middle-income status by 2035.In 1982 the Economic Recovery Programme (ERP) were fromed with the IMF and the World Bank.In 1992, the Structural Adjustment Programme was adopted to reduce the role of the government and promote role of private financial service providers in the area. The country follow to frame a efficient structure with high quality international standard , main focus was given on Social Efficiency, Transaction cost information , supportive Institutional Environment .

The financial sector development plan (FSDP) of Sierra Leone based on the areas :

developing commercial banking capacity; supervision and regulation
enhance access to finance: mobilization and flow
financial system stability:: by use of high modern payment system and infrastructure.

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