A comparative case study between UK and US markets: Asymmetric Information

The main reason why people would rather keep their money in banks than invest is largely because of the risk present from the information asymmetry involving the financier and recipient of funds. The seller understands more about the sale product than the purchaser. So the buyer’s attempt to buy a product is anchored on risk. On the other hand, the borrower understands their monetary conditions and future opportunities than the financier. In the midst of all this is the element of trust on peril, especially when it comes to the guarantee that the borrower will not vanish with the loot. An organization that sells stock may fail to invest wisely. On the contrary, the money could be used to compensate its CEO’s or colossal bonuses to bankers that practical destroy their organization.