The Problem of Adverse Selection Helps to Explain

question 69

Multiple Choice

The problem of adverse selection helps to explain

• A)why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from securities markets.
• B)why collateral is an important feature of consumer,but not business,debt contracts.
• C)why direct finance is more important than indirect finance as a source of business finance.
• D)why lenders refuse loans to individuals with high net worth.

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Definitions:

Oxygen Sag Curve

The Oxygen Sag Curve is a graph that depicts the reduction of dissolved oxygen in a body of water, typically as a result of organic matter decomposition and microbial consumption.

Degradable Pollutants

Pollutants capable of being broken down into less harmful substances by natural processes.

Water Volume

The quantity of three-dimensional space occupied by a liquid or gas, often measured in liters, gallons, or cubic meters.

Fish Kills

Events where a significant number of fish die suddenly in a particular area, often due to factors like pollution, lack of oxygen, or disease.