If Bad Credit Risks Are the Ones Who Most Actively

question 13

Multiple Choice

If bad credit risks are the ones who most actively seek out loans to finance investments,and therefore receive them from financial intermediaries,then financial intermediaries face the problem of:

• A) Free-riding
• B) Costly state verification
• C) Adverse selection
• D) Moral hazard

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Definitions:

Interest

Interest is the cost of borrowing money, typically expressed as an annual percentage rate, or the earnings from lending money.

Investments

Assets or items acquired with the goal of generating income or appreciation, including stocks, bonds, real estate, or business ventures.

Savings

Money set aside for future use, often stored in accounts that accrue interest over time, helping to protect against financial emergencies or to finance future purchases.

Interest

The cost of borrowing money or the reward for saving, expressed as a percentage of the principal amount per period of time.