Which of the Following Statements Is False

question 1

Multiple Choice

Which of the following statements is false?

• A) Asymmetric information can exist both before and after a transaction.
• B) Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party.
• C) Adverse selection has the potential to eliminate some markets.
• D) none of the above

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Definitions:

Strike Price

The fixed price that allows the possessor of an option to either acquire (with a call option) or dispose of (with a put option) the base asset.

Put Option

A financial contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Market Price

The present cost at which a product or service is available for purchase or sale in the market.

Strike Price

This is the agreed-upon price within an option contract at which the underlying asset can be bought or sold before the option expires.