The key reason why loans from financial institutions and other forms of borrowing are not perfect substitutes is that
A)information problems exist in financial markets.
B)banks are legally required to offer loans at rates below those prevailing in the bond market.
C)the tax treatment of loans from financial institutions is different from the tax treatment of loans obtained in the bond market.
D)financial institutions have great difficulty in evaluating the creditworthiness of all but the largest borrowers.

Question

Quizplus · Accepted Answer

The reason why loans from financial institutions and other forms of borrowing are not perfect substitutes is due to the existence of information problems in financial markets. This means that lenders may not have complete information on the creditworthiness or risk of the borrower, which can affect the terms and interest rates of the loan. This is not necessarily related to legal requirements or tax treatment, but rather a fundamental issue in financial markets.

The Key Reason Why Loans from Financial Institutions and Other