Transaction Costs, Adverse Selection, and Moral Hazard.
I don’t know how to handle this Accounting question and need guidance.
The trouble with banks is that breakdowns in banking can wreak havoc on the entire economy. To see why, think how a financial system works. It involves processing information between two willing partners, the lender and the borrower. One problem that the financial systems encounter in processing information is adverse selection. The other is moral hazard. And there is the transaction cost.
Write an essay discussing transaction costs, adverse selection, and moral hazard. Your essay should describe what each of these items is, what problems they create for the financial system, and how financial institutions can minimize these problems.
Your submission should be 3-4 pages.
This paper should be formatted in APA. The cover and reference pages do not count towards your content page requirement. The essay must have two references. You can use your book as one reference and any search engine for additional references. Wikipedia is not a credible website and may not be used.