When the Lender and the Borrower Have Different Amounts of Information

question 8

Multiple Choice

When the lender and the borrower have different amounts of information regarding a transaction,________ is said to exist.

• A) asymmetric information
• B) adverse selection
• C) moral hazard
• D) fraud

---

Definitions:

Signaling Effect

The signaling effect is a theory in finance suggesting that the actions of a company, such as dividend announcements or share buybacks, send signals to the market about its future prospects.

Dividend Policy

A company's approach to distributing profits to its shareholders, determining how much to pay out in dividends and how often.

Investor Confidence

The degree of faith that investors have in the stability and profitability of the financial markets, influencing their willingness to invest.

Clientele Effect

A theory suggesting that the stock price movements are influenced by the preferences of a company's current shareholder base.