To counter the lemons and adverse selection problems in its lending activity, a bank can:

Question

Quizplus · Accepted Answer

All of the options listed are strategies banks can use to mitigate the risks associated with adverse selection and the lemons problem in lending. Raising interest rates compensates for assumed risk, investing in credit reports helps assess borrower risk more accurately, requiring collateral reduces the potential loss on loans, and charging different interest rates to different borrowers allows banks to price loans according to the risk level of the borrower.

To Counter the Lemons and Adverse Selection Problems in Its