Topic: Money and Banking
Topic: Money and Banking
Pages: 4
Sources: 4
Format: APA
Instructions:
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.
Assets
Reserves- $50 million
Securities- $50 million
Loans- $150 million
Liabilities
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.