When the Government Mandates Participation in a Program to Solve

question 92

Multiple Choice

When the government mandates participation in a program to solve an information asymmetry problem, it is trying to prevent:

• A)moral hazard.
• B)adverse selection.
• C)building a reputation.
• D)illegal screening.

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Definitions:

Forward Contract

A financial derivative instrument between two parties to buy or sell an asset at a specified future time at a price agreed upon today.

Settlement Date

The date on which a trade is finalized and the buyer must make payment and the seller deliver the asset.

Forward Rate

Refers to the agreed exchange rate for a currency transaction that will occur at a future date.

Exchange Gain

A profit resulting from holding foreign currencies that appreciate against the home currency.