Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do so?

A. Decisions made by financial intermediaries are public knowledge, while investments made with financial instruments are not.

B. The free-rider problem reduces gains for financial intermediaries more than it does for investors in financial instruments.

C. Banks make private loans; their conclusions on who is creditworthy are not made public.

D. Credit information is asymmetric for investors but not for financial intermediaries.

Question

Business

Arthur Giles

30 November, 07:41

Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do so?

A. Decisions made by financial intermediaries are public knowledge, while investments made with financial instruments are not.

B. The free-rider problem reduces gains for financial intermediaries more than it does for investors in financial instruments.

C. Banks make private loans; their conclusions on who is creditworthy are not made public.

D. Credit information is asymmetric for investors but not for financial intermediaries.

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Answers (1)

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Alexis Barnett · Answer 1

C. Banks make private loans; their conclusions on who is creditworthy are not made public.

Explanation:

Investors in financial instruments who engage in information collection face a free-rider problem, which means other investors may be able to benefit from their information without paying for it.

Individual investors, therefore, have inadequate incentives to devote resources to gather information about borrowers who issue securities.