2. Market failure in the financial sector
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6 Terms
What are the market failures in the financial sector
o asymmetric information
o externalities
o moral hazard
o speculation and market bubbles
o market rigging
What is asymmetric information?
When one individual or part has more information than the other party
What is externalities
When a market transaction has a negative consequence for a third party
What is moral hazard
Occurs when someone increases their exposure to risk when insured, especially when a person takes on more risks because someone else bears the cost
What is speculation and market bubbles
A risky action in which a person or organisation tries to predict what will happen to the price of asset and sells / buys to try make a profit
What is market rigging?
When a small number of firms work together to increase their joint profits and exploit consmers