Adverse Selection

question 32

Multiple Choice

Adverse selection:

• A) results from unobserved characteristics of people or commodities.
• B) is about the actions of people.
• C) occurs after the parties have entered into an agreement.
• D) All of these statements are true.

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Definitions:

Credit Register

A ledger or record keeping system that tracks credit transactions, including purchases and payments on account.

Bank Errors

Mistakes made by a bank in the recording of transactions, which can include discrepancies in account balances and unauthorized transactions.

Cash Account

A cash account refers to a brokerage account where the investor must pay the full amount for securities purchased, as opposed to buying on margin.

Unrecorded Charges

Expenses or financial obligations that have not been documented in the accounting records, potentially leading to discrepancies.