The Problem of Adverse Selection Helps to Explain

question 69

Multiple Choice

The problem of adverse selection helps to explain

• A)why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from securities markets.
• B)why collateral is an important feature of consumer,but not business,debt contracts.
• C)why direct finance is more important than indirect finance as a source of business finance.
• D)why lenders refuse loans to individuals with high net worth.

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Definitions:

Sterile Field

A specified area, free of all microorganisms, created around the site of a surgical procedure to prevent infection and maintain asepsis.

Petroleum-Based Product

Goods derived from petroleum, including fuels, plastics, and certain chemicals.

Latex Allergies

An allergic reaction to natural rubber latex, characterized by symptoms ranging from skin irritation to severe anaphylactic reactions.

Tuberculosis

An infectious disease caused by the bacterium Mycobacterium tuberculosis, primarily affecting the lungs but can spread to other organs.