The Problem of Adverse Selection Helps to Explain

question 69

Multiple Choice

The problem of adverse selection helps to explain

• A)why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from securities markets.
• B)why collateral is an important feature of consumer,but not business,debt contracts.
• C)why direct finance is more important than indirect finance as a source of business finance.
• D)why lenders refuse loans to individuals with high net worth.

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Definitions:

Abuse

The maltreatment or misuse of someone or something, causing harm or distress.

Inadequate Clothing

Clothing that fails to provide sufficient protection or coverage for the environment or context in which it is worn.

Unclean

Dirty or impure; not clean.

Neglect

The failure to provide for a person’s basic needs, whether intentionally or through carelessness.