If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of
A)moral hazard.
B)adverse selection.
C)free-riding.
D)costly state verification.

Question

Quizplus · Accepted Answer

Adverse selection occurs when the selection of borrowers for loans is biased towards those with a higher risk of default. In this case, if financial intermediaries are primarily lending to those with bad credit, they may be facing adverse selection since those borrowers are more likely to default on their loans. This can create problems for the intermediaries in terms of managing their risk and profitability.

If Bad Credit Risks Are the Ones Who Most Actively