The Possibility That a Borrower Might Engage in Riskier Behavior

question 2

Multiple Choice

The possibility that a borrower might engage in riskier behavior after a loan is made is called

• A) adverse selection.
• B) liability aversion.
• C) moral hazard.
• D) the risk of default.

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Definitions:

Sarbanes-Oxley (SOX)

A U.S. federal law enacted to protect investors by improving the accuracy and reliability of corporate disclosures, enhancing financial reporting and corporate governance.

Securities and Exchange Commission

A U.S. regulatory agency responsible for enforcing federal securities laws, regulating the securities industry, and overseeing the nation’s stock and options exchanges.

Small Business Administration

A U.S. government agency that provides support to entrepreneurs and small businesses, including loans, grants, and resource guides.

Internal Revenue Service

The U.S. federal agency responsible for the administration of tax laws and the collection of taxes, commonly referred to as the IRS.