The risk that the borrower knows more about the risks of the project than the lender is ______________________.
A) adverse selection
B) default risk
C) moral hazard
D) asymmetric information.

Question

Quizplus · Accepted Answer

Asymmetric information refers to a situation where one party has more information than the other party. In the context of lending, the borrower knows more about the risks of the project than the lender. This can lead to adverse selection, where the borrower takes on more risk than the lender is aware of, or moral hazard, where the borrower takes on more risk after the loan has been made.

The Risk That the Borrower Knows More About the Risks