What Is Adverse Selection

question 70

Multiple Choice

What is adverse selection?

• A)It refers to the private, self-interested actions people that people pursue, which when taken collectively leads to a loss in economic surplus.
• B)It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.
• C)It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
• D)It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

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Definitions:

IFRS

International Financial Reporting Standards, which are global accounting standards for preparing financial statements.

Liquidity

A measure of a company's or individual's ability to meet short-term obligations, often associated with the ease of converting assets into cash.

Liabilities

Financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of assets, provision of services, or other value.

Effective-Interest Method

An accounting technique used to amortize the discount or premium on bonds payable over the life of the bonds, more precisely matching interest expense with the accounting periods in which they are incurred.