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.

---

Definitions:

Codon

A sequence of three nucleotides which together form a unit of genetic code in a DNA or RNA molecule, specifying a particular amino acid.

Amino Acids

Organic compounds that combine to form proteins, acting as the building blocks of life.

Metabolic Defects

Metabolic defects refer to abnormalities in the body’s processes that convert food into energy, leading to various health issues.

Enzyme

Enzyme is a protein that acts as a biological catalyst, speeding up chemical reactions in living organisms without being consumed in the process.