If a Lender Checks Credit Reports on Individuals Before Mailing

question 53

Multiple Choice

If a lender checks credit reports on individuals before mailing out loan offers, it is most likely trying to avoid

• A) moral hazard.
• B) moral dilemma.
• C) adverse selection.
• D) adverse reaction.

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Definitions:

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Nominal Rate of Interest

The rate of interest before adjustment for inflation, reflecting the rate at which money will grow over time without considering the purchasing power of that money.

Real Rate of Interest

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the real yield to lenders or investors.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling over time.