Questions
BU.232.715.51.SP25 HW5
Single choice
A fire-sale externality arises when each individual financial institution takes into account the price impact its own fire-sales will have on asset prices
Options
A.TRUE
B.FALSE
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Step-by-Step Analysis
The question is about the nature of a fire-sale externality in financial markets.
Option 1 (TRUE): Proposes that a fire-sale externality arises when each institution takes into account the price impact of its own fire-sales on asset prices. This would mean each firm internalizes the external effect on price......Login to view full explanationLog in for full answers
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A fire-sale externality arises when each individual financial institution does not take into account the price impact its own fire-sales will have on asset prices
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