Banks Deal with Problems of Adverse Selection by

question 74

Multiple Choice

Banks deal with problems of adverse selection by

• A)charging high interest rates.
• B)gathering information about the default risk of borrowers.
• C)making only short-term loans.
• D)making only long-term loans.

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Definitions:

Bell Shaped Distribution

Also known as a normal distribution, it is a probability distribution that has a symmetrical bell-shaped graph, indicating that most of the data points are concentrated around the mean.

Supply And Demand

Fundamental economic principles that describe the relationship between the availability of a product or service (supply) and the desire of potential buyers (demand).

Bell Shaped Distribution

A probability distribution that is symmetrical and tapers towards the tails, resembling a bell; commonly known as the normal distribution.

Price-Earnings Ratios

A metric used to value a company by comparing its current share price to its per-share earnings.