Select all correct answers. Financial Institutions have informational advantages because: They monitor and control borrowers. Possess...

Select all correct answers. Financial Institutions have informational advantages because:

They monitor and control borrowers.
Possess expertise and economies of scale.
Have no incentives to invest in information.

Expert Solution

In fact finacial institutions have informational advantaes because:

they monitor and control borrowers-

yes financial institution monitor and control borrowers because FI it lends money to people before this FI's check the solvancy of the borrowers to analyse that borrower would be able to refund the loan amount. and also make a full analysis of borrowers earning per year.how much already money borrowed.

Possess expertise and economies of scale-

FI's has expertise and economies of scale to analyse the parameters about the borrowers to reduce the risk of asset become non-performing asset and doubt about non payment of fund by borrowers. by using expertise and economies FI's may save huge fund to become NPA.

BY USING these above two option FI's can reduce the risk of NPA at acceptable low level

Have no incentives to invest in information.

no it is not correct because by analyse to borrowes FI's have to use informatio or may take information from credit rating agencies. therefore information is useful.

jeff jeffy answered 2 years ago

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