Moody's, Fitch's, and Standard and Poors help reduce __________ in financial markets. a) the principal agent...

Moody's, Fitch's, and Standard and Poors help reduce __________ in financial markets.

a) the principal agent problem

b) prices

c) the lemon's problem

d) moral hazard

Solutions

Expert Solution

The right answer is option A, because poor credit ratings will prevent the firms in financial markets to involve in risky activities because poor ratings will affect the investment in those firms which will effect the profitability of those firms. Principal agent problem implies that the agent will involve in risky activities because agent knows that they do not have to bear the cost of those risky activities as the principal will bear those cost of those risky activities.

Rahul Sunny answered 2 years ago

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