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A friend who is taking her first class in investments asks you why the regulatory bodies...

A friend who is taking her first class in investments asks you why the regulatory bodies place so much emphasis on minimizing insider information if many of the potential problems associated with financial transactions stem from information asymmetry or a lack of information. How would you respond?

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Insider information passing is an illegal activity . The potential problems associated with financial transactions are from asymmetric information such as adverse selection and moral hazard . The selection of the right fund and after investment whether the money is being utilized properly or not are the adverse selction and moral hazard problem . Insider information comes under another moral hazard problem . Only few people receive this information and can cause dumping or other activities for self benefit . Other investors who do not get this information are at a loss . This is not a fair atmosphere for investment .

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