Which of the following regulatory actions most directly addresses information asymmetry in financial products?

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BlackTom AI · Accepted Answer

To tackle information asymmetry in financial products, we evaluate how each action changes what buyers can know before making a decision.
Option 1: Increasing disclosure requirements on the terms and conditions in financial contracts. This directly reduces information gaps by making more details about fees, risks, and features transparent, enabling buyers to compare products and assess true costs and benefits.
Option 2: Increasing capital requirements for financial institutions. While this can improve overall system safety and reduce risk-taking, it does not directly address the imbalance of information available to individual investors about specific products.
Option 3: Enforcing anti-trust regulation to prevent financial institutions from becoming too large. Antitrust aims at competition and market power, not at the immediate transfer of information to consumers, so it’s not a direct remedy for asymmetry in product information.
Option 4: Placing caps on interest rates financial institutions are permitted to charge. Interest rate caps affect pricing but do not inherently improve the disclosure or clarity of product terms, and may even obscure true cost structures if not paired with transparent disclosures.
In summary, options 2, 3, and 4 address broader regulatory or pricing concerns rather than directly reducing the information gap between product providers and consumers, whereas option 1 directly targets information transparency to mitigate asymmetry.

ERMCPS5250_006_2025_1 - EXTERNAL STAKEHOLDER REQUIREMENTS Quiz 1 - Introduction to Regulators

Which of the following regulatory actions most directly addresses information asymmetry in financial products?

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