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Financial Intermediaries Discussion

Please describe briefly.
1. Consider whether you would buy a used car from a person or from a dealership. What are the pros and cons of each and how does that relate to the chapter material?

2. Discuss two factors that may affect a person's credit score and apply the notion of moral hazard to your response.


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1 -- I would consider buying a used car from a dealership as opposed to a person. There are advantages and disadvantages to each, however. When we buy a used car from a dealership, there is generally a chance to finance the loan, if the used car is more than we have in cash. Also, there is usually some type of written warranty with the car that covers most issues for a certain period of one-two years. There is a great deal of risk when buying a used car because we don't know what the car has actually been through, in regards to accidents, weather it was exposed to for an extended period, and so forth. When we buy from a dealership, that degree of risk decreases because we are working with a dealer, who can do just that - make deals. However, the disadvantage is that the dealership will only drop a price so low on a used car. The dealership has overhead to pay, unlike the person selling the ...

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This solution discusses the financial intermediaries questions listed.