Which of the Following Represent Examples of Adverse Selection

question 33

Multiple Choice

Which of the following represent examples of adverse selection?

• A) Unhealthy people are more likely to want health insurance.
• B) Careless drivers purchasing extra auto insurance.
• C) Risk averse individuals choosing to buy extra insurance.
• D) all of the above
• E) A and B only

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Definitions:

Fair Value Hedge

A financial hedge that is used to mitigate the risks associated with the changes in the fair value of assets or liabilities or an identified portion of such assets or liabilities.

Discount Recognized

Discount Recognized refers to the process of acknowledging a reduction from the nominal value of a financial instrument when it is realized or accounted for.

Foreign Exchange Gain

A profit arising from an increase in the value of one currency relative to another in the foreign exchange markets.