One Method That Lenders Use to Mitigate the Adverse Selection

question 92

Multiple Choice

One method that lenders use to mitigate the adverse selection problem is to

• A)charge higher interest rates to less creditworthy borrowers.
• B)monitor closely the behavior of borrowers after a loan is made.
• C)ration credit.
• D)provide default insurance.

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Definitions:

Demand Rate

The rate at which goods or services are required or consumed by the market or a specific customer over a given time period.

Linear Programming

A mathematical method for determining a way to achieve the best outcome, such as maximum profit or lowest cost, in a given mathematical model for some list of requirements represented as linear relationships.

Aggregate Plan

A plan that outlines a company's production rates, inventory, staffing levels, and other variables to meet forecasted demand while minimizing costs over a specific time period.

Constraints

Limitations or restrictions that affect the development, operation, or outcome of a process or system.