The Possibility That a Borrower Might Engage in Riskier Behavior

question 420

Multiple Choice

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is

• A) asymmetric information.
• B) adverse selection.
• C) moral hazard.
• D) financial intermediation.

---

Definitions:

Return on Equity

A financial ratio measuring the profitability of a business in relation to the equity held by the shareholders.

Asset Turnover

A ratio determining the efficacy of a company's asset utilization in creating sales revenue.

Current Ratio

An indicator of a company's short-term financial health, determined by dividing its assets due within a year by its liabilities due in the same timeframe.

Net Working Capital

The discrepancy between a firm's immediate assets and its short-term obligations.