Banks Deal with Problems of Adverse Selection by

question 74

Multiple Choice

Banks deal with problems of adverse selection by

• A)charging high interest rates.
• B)gathering information about the default risk of borrowers.
• C)making only short-term loans.
• D)making only long-term loans.

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Definitions:

Residual Income

Income that remains after deducting all costs, expenses, and taxes necessary to sustain the operation of the business.

Return On Investment

A financial metric used to evaluate the efficiency of an investment, calculated as the net profit divided by the initial cost of the investment.

Invested Assets

Assets, including both equity and debt investments, that are held by an entity for earning returns or dividends.

Income From Operations

The profit generated from a business's regular core business operations, excluding any investment and financing activities.