Analysis of adverse selection indicates that financial intermediaries, especially banks,
A) have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than is direct finance.
B) despite their success in overcoming free-rider problems, nevertheless play a minor role in moving funds to corporations.
C) provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations which rely to a greater extent on the new issues market for funds.
D) must buy securities from corporations to diversify the risk that results from holding non-tradable loans.
Answer: A
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