Assignment
TOPIC: MONEY AND BANKING
Respond to each of the following questions.
a. Explain the principal-agent problem as it pertains to equity contracts.
b. Why does the free-rider problem occur in the debt market? Provide one supporting fact.
c. 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?
d. How can specializing in lending help to reduce the adverse selection problem in lending? Provide two (2) examples to support your response.
Format your assignment according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the assignment, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.