The Problem of Adverse Selection Helps to Explain ________

question 21

Multiple Choice

The problem of adverse selection helps to explain ________.

• A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from securities markets
• B) why direct finance is more important than indirect finance as a source of business finance
• C) why collateral is not an important feature of debt contracts
• D) why banks prefer to make loans unsecured

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Definitions:

Managed Behalf

Acting or making decisions for another person or entity, typically in a professional or representative capacity.

Employee Participation

Involvement of employees in the decision-making processes of an organization, aiming to increase engagement and morale.

Pay-Related Decisions

Choices made by employers regarding compensation, including wages, salaries, bonuses, and benefits, directly affecting employee remuneration.

Incentive Plan

A program designed by organizations to motivate and reward employees for reaching specific performance targets.