The Concept of Adverse Selection Helps to Explain

question 31

Multiple Choice

The concept of adverse selection helps to explain

• A)why collateral is not a common feature of many debt contracts.
• B)why large,well-established corporations find it so difficult to borrow funds in securities markets.
• C)why financial markets are among the most heavily regulated sectors of the economy.
• D)why stocks are the most important source of external financing for businesses.

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Definitions:

Reticular Formation

A network of neurons located in the brainstem that plays a key role in controlling arousal and alertness.

Higher Brain Regions

Parts of the brain associated with complex functions such as thinking, decision making, emotion, and consciousness, typically including the cerebral cortex and associated structures.

Coma

A deep state of prolonged unconsciousness in which a person cannot be awakened, fails to respond to stimuli, and does not have a normal sleep-wake cycle.

Aggressive

Behavior characterized by physical or verbal harm towards others, or by forcefulness to achieve one's goals.