The Concept of Adverse Selection Helps to Explain All of the Following

question 42

Multiple Choice

The concept of adverse selection helps to explain all of the following EXCEPT

• A)why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from the securities markets.
• B)why indirect finance is more important than direct finance as a source of business finance.
• C)why direct finance is more important than indirect finance as a source of business finance.
• D)why the financial system is so heavily regulated.

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Definitions:

Avoidance-Avoidance Conflict

A psychological conflict arising when an individual must choose between two unfavorable options.

Approach-Avoidance Conflict

A psychological struggle experienced when an individual is attracted to and repelled by the same goal or activity.

Law School

An educational institution where students study and train to become lawyers, focusing on legal theories, practices, and the judicial system.

Prestige

The respect and admiration that an individual, occupation, or organization is held in by others, often reflecting a perceived high status or quality.