A bank
A) has the ability to profit from the information it produces.
B) avoids the free-rider problem by primarily making private loans rather than by purchasing securities that are traded in the open market.
C) becomes an expert in determining good firms from bad firms.
D) all of the above.

Question

Quizplus · Accepted Answer

A) A bank has access to a lot of information about its customers, which it can use to determine creditworthiness, assess risk, and make informed lending decisions. This information can give the bank a competitive advantage and enable it to generate profits from its activities.
B) By primarily making private loans, a bank can avoid some of the free-rider problems that arise in the market for publicly traded securities. In this way, the bank can better control the risk associated with its loan portfolio.
C) Banks have a lot of experience analyzing financial statements, assessing risk, and identifying good firms from bad firms. This expertise can allow banks to make better lending decisions and avoid losses from defaulting borrowers.

A Bank