Question

How does adverse selection in financial markets affect the method by which firms raise funds?

How does adverse selection in financial markets affect the method by which firms raise funds?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Adverse selection is indeed a result of assymetric information and while raising the funds the firms sell securities to the buyers and without knowing the potential of the actual buyer if they get to underprice the share value, then ultimately the firm holds a loss value and similarly if they overvalue the share , the buyer incurs a loss and Thai can get to lose confidence which ultimately results in improper raising of funds on the whole. Also this defames the value of the firm in the marketplace all in all.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Define ‘financial market’. How (a) moral hazard and (b) adverse selection can affect financial market stability?...
Define ‘financial market’. How (a) moral hazard and (b) adverse selection can affect financial market stability? – Explain
How does adverse selection affect the market for health insurance? What are some ways we have...
How does adverse selection affect the market for health insurance? What are some ways we have tried (or might try in the future) to address this problem
6. How does adverse selection affect the market for health insurance? What are some ways we...
6. How does adverse selection affect the market for health insurance? What are some ways we have tried (or might try in the future) to address this problem?
Money Markets are: Select one: a. Markets in which corporations raise funds through new issues of...
Money Markets are: Select one: a. Markets in which corporations raise funds through new issues of securities. b. Markets that trades financial instruments once they are issued. c. Markets that trade debt securities or instruments with maturities of one year or less. d. Markets that trade debt and equity instruments with maturities of more than one year. e. None of the above.
Secondary Markets are: Select one: a.  Markets in which corporations raise funds through new issues of securities....
Secondary Markets are: Select one: a.  Markets in which corporations raise funds through new issues of securities. b. Markets that trades financial instruments once they are issued. c. Markets that trade debt securities or instruments with maturities of one year or less. d. Markets that trade debt and equity instruments with maturities of more than one year. e. None of the above.
Because of the adverse selection problem in the financial market, a firm’s newly issued stocks or...
Because of the adverse selection problem in the financial market, a firm’s newly issued stocks or bonds could be ( ) so that the firm would withdraw from the market. It will leave only the ( ) credit firms in the market. Words: Good, bad, undervalued, overvalued
Because of the adverse selection problem in the financial market, a firm’s newly issued stocks or...
Because of the adverse selection problem in the financial market, a firm’s newly issued stocks or bonds could be ( ) so that the firm would withdraw from the market. It will leave only the ( ) credit firms in the market. Words: Good, bad, undervalued, overvalued
What is "adverse selection" and how does it apply to elections? What are the basic guidelines...
What is "adverse selection" and how does it apply to elections? What are the basic guidelines provided in the Constitution about elections (e.g., Article 1, Section 4; 17th, 12th, 24th & 26th amendments)?
Asymmetric Information plays an important part in financial markets, to include your own buying and selling...
Asymmetric Information plays an important part in financial markets, to include your own buying and selling habits. Perhaps you’re looking at buying a new car and are trading in your old one. Perhaps it’s a house or simply a textbook on-line. Adverse selection and moral hazard are two problems you’re inevitably going to face at some point, and most likely already have. Select an article you may have bought or sold in the past, or might purchase in the future....
How does fluctuating markets affect individual buying decisions?
How does fluctuating markets affect individual buying decisions?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT