... actively seek out a loan and hence are most likely to be selected. Financial intermediaries can help solve the problem of adverse selection in many ways. To explain how they can help it is easier to look at the used car market structure and it is similar to the structure of a financial intermediary. The most important feature of a used car market is that cars are not sold directly from one person to another. An individual considering to buy a car may seek advice from a magazine such as Exchange and Mart. However, doing this background reading would not solve the problem of adverse selection as even though a car may have a good reputation, the specific car that is trying to be sold to them maybe faulty. The buyer might then hire a mechanic to evaluate the car but has to consider if the mechanic can be trusted and ...

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