Question: Answer all questions. Question 1 (15 marks) Adverse selection and moral hazards are two terms used in financial markets to describe situations where one party

Answer all questions. Question 1 (15 marks) Adverse selection and moral

Answer all questions. Question 1 (15 marks) Adverse selection and moral hazards are two terms used in financial markets to describe situations where one party is at a disadvantage. a) Explain the adverse selection problem in financial markets. (4 marks) b) Discuss the solution to the adverse selection problem. (4 marks) c) Discuss how to reduce/solve the problems arising from moral hazard. (7 marks)

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