Questions
Single choice
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
Options
A.TRUE
B.FALSE
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Step-by-Step Analysis
Consider the statement and the concept of a fire-sale externality in financial markets.
Option 1 (TRUE): This describes the core idea of a fire-sale externality. When a bank or other institution must sell assets quickly at fire-sale prices, the forced sale itself depresses asset pric......Login to view full explanationLog in for full answers
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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
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