Banks' attempts to solve adverse selection and moral hazard problems help explain loan management principles such as

Question

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Banks' attempts to solve adverse selection and moral hazard problems require a combination of strategies such as screening loan applicants to identify high-risk borrowers, monitoring them to ensure that they use the funds for the intended purposes, and using collateral and compensating balances to reduce the risk of default. Credit rationing may also be necessary to limit the overall risk exposure of the bank. Therefore, all of the choices listed in A, B, and C are applicable loan management principles that banks use to mitigate risk.

Banks' Attempts to Solve Adverse Selection and Moral Hazard Problems