When traders know exactly what is being traded:
A) adverse selection exists.
B) trades that occur will be mutually beneficial.
C) moral hazard exists.
D) trades will not be mutually beneficial.

Question

Quizplus · Accepted Answer

When traders know exactly what is being traded, trades that occur will be mutually beneficial as both parties have a clear understanding of the terms and conditions, and are aware of what they will receive from the trade. Adverse selection occurs when one party has more information than the other, while moral hazard occurs when one party takes excessive risks knowing that the consequences will be borne by the other party. Trades will not be mutually beneficial when one party is unaware or misinformed about the terms of the trade.

When Traders Know Exactly What Is Being Traded