When the Borrower Has More Knowledge About the Attributes of an Investment

question 3

Multiple Choice

When the borrower has more knowledge about the attributes of an investment project than the lender, then the lender has a problem of:

• A) adverse selection.
• B) moral hazard.
• C) risk aversion.
• D) systematic risk.

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Definitions:

Floating-Rate Bonds

Debt securities where the interest payments fluctuate with market interest rates rather than being fixed, potentially offering less predictable returns.

E-Commerce

The buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions.