Adverse Selection Refers to the

question 60

Multiple Choice

Adverse selection refers to the

• A) possibility that the borrower may engage in riskier behavior after the loan is obtained.
• B) likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.
• C) possession of information by one party in a financial transaction not known by the other party.
• D) use of statistical discrimination in making loans.

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Definitions:

Income Summary

An account to which the revenues and expenses are transferred at the end of an accounting period to calculate the net income or loss for the period before transferring this balance to owner's equity.

Purchases

Purchases refer to the acquisition of goods or services by a company for use in its operations or for resale to customers.

Unearned Rent

Income received by a landlord for rent that has not yet been earned because the period of occupancy has not yet occurred.

Liability

A financial obligation or debt that an individual or company owes to another party.