Questions from Financial Markets

Q: Explain the adverse selection problem and the moral hazard problem in insurance

Explain the adverse selection problem and the moral hazard problem in insurance. Gorton Insurance Co. wants to properly price the insurance for car accidents. If Gorton wants to avoid the adverse sele...

Q: Why did the U.S. government rescue AIG during the

Why did the U.S. government rescue AIG during the credit crisis in 2008?

Q: Why might pension funds be exposed to interest rate risk? How

Why might pension funds be exposed to interest rate risk? How can pension funds reduce their exposure to interest rate risk?

Q: McCanna Inc. has hired an investment company to manage its pension

McCanna Inc. has hired an investment company to manage its pension fund, which is invested in a stock portfolio and bond portfolio. Explain how McCanna can evaluate the performance of the investment c...

Q: When the Fed increases money supply to lower the federal funds rate

When the Fed increases money supply to lower the federal funds rate, do you think this will the cost of capital of U.S. companies be reduced? Explain how the segmented markets theory regarding the ter...

Q: Explain how some government defined-benefit plans have become underfunded as

Explain how some government defined-benefit plans have become underfunded as a result of overestimating their rate of return on investment.

Q: Explain how an underfunded public pension fund can affect the debt rating

Explain how an underfunded public pension fund can affect the debt rating of a city or state.

Q: Explain the potential for corruption when a trustee has the power to

Explain the potential for corruption when a trustee has the power to determine who will manage a pension fund.

Q: Describe a defined-benefit pension plan. Describe a defined-

Describe a defined-benefit pension plan. Describe a defined-contribution plan and explain how it differs from a defined-benefit plan.

Q: Explain how pension funds participate in financial markets.

Explain how pension funds participate in financial markets.