One Problem with Insurance Is That It Allows People to Live

question 73

True/False

One problem with insurance is that it allows people to live in flood plains. This is an example of adverse selection.

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Definitions:

Derivatives

Financial contracts whose value is based on the performance of an underlying asset, index, or interest rate, used for hedging risks or speculating.

Financially Sound

A description of an entity's state when it has stable financial health, showing both short-term liquidity and long-term solvency.

Financially Distressed

The situation in which a company or individual cannot meet or has difficulty paying off financial obligations.

Financial Risk

The equity risk that comes from the financial policy (i.e., capital structure) of the firm.