Because of the Adverse Selection Problem

question 37

Multiple Choice

Because of the adverse selection problem,

• A) good credit risks are more likely to seek loans, causing lenders to make a disproportionate amount of loans to good credit risks.
• B) lenders may refuse loans to individuals with high net worth, because of their greater proclivity to "skip town."
• C) lenders are reluctant to make loans that are not secured by collateral.
• D) all of the above.

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Definitions:

Real Exchange Rate

The rate at which one country's currency can be exchanged for another's, adjusted for inflation, reflecting the buying power between the two currencies.

Arbitragers

Individuals or entities that seek to profit from price discrepancies of the same asset in different markets or forms.

Russian Rubles

The currency used in Russia, which acts as a medium of exchange within the Russian economy.

Real Exchange Rate

The real exchange rate measures the value of one currency against another, adjusted for inflation, reflecting the purchasing power of one country's currency in another country.