A Credit Union Faces A(n) ________ Problem When It Lends

question 105

Multiple Choice

A credit union faces a(n) ________ problem when it lends funds to a customer to remodel her home and the customer then opportunistically uses the funds for a gambling trip to Las Vegas.

• A) adverse selection
• B) moral hazard
• C) external cost
• D) free-rider

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Definitions:

Ledger Balance

The total balance of funds in an account at the beginning of each day, including all deposits and withdrawals that were posted from the previous night.

Collection Float

The time period between when a check is deposited into a bank account and when the amount is available to the account holder, reflecting the bank's processing time.

Marketable Securities

Financial instruments that can easily be converted to cash quickly at a reasonable price.

Miller-Orr Model

A financial model used to manage cash flow and determine the optimal level of cash reserves for a firm.