Banks Face the Problem of ________ in Loan Markets Because

question 18

Multiple Choice

Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans.

• A)adverse selection
• B)moral hazard
• C)moral suasion
• D)intentional fraud

---

Definitions:

Capital Structure

The mix of debt and equity financing a company uses for its operations and growth.

Optimal Capital Structure

Optimal capital structure is the mix of debt, equity, and other financing sources that minimizes a firm's cost of capital and maximizes shareholder value, balancing risk and return.

Financial Distress

A situation where a company cannot meet or has difficulty paying off its financial obligations to creditors, often leading to bankruptcy or restructuring.

Taxable Income

The amount of income used to calculate how much tax an individual or a company owes to the government.