From the standpoint of ________,specialization in lending is surprising but makes perfect sense when one considers the ________ problem.
A)moral hazard;diversification
B)diversification;moral hazard
C)adverse selection;diversification
D)diversification;adverse selection

Question

Quizplus · Accepted Answer

From the standpoint of diversification, specialization in lending is surprising but makes perfect sense when one considers the adverse selection problem. Adverse selection occurs when one party in a transaction has more information than the other party, leading to potentially negative consequences for the less informed party (in this case, the lender). Specializing in lending allows lenders to focus on identifying the borrowers who represent lower risk and avoiding those who represent higher risk, mitigating the adverse selection problem.

From the Standpoint of ________,Specialization in Lending Is Surprising but Makes