Which of the following reduces the risk of moral hazard and the bank's risk in making loans?
A)Collateral
B)Adverse selection
C)Fixed interest rate
D)Securitization

Question

Quizplus · Accepted Answer

Collateral reduces the risk of moral hazard by making the borrower more likely to repay the loan on time, as they have something to lose if they default. It also reduces the bank's risk by providing a secondary source of repayment if the borrower defaults on the loan. Adverse selection, fixed interest rates, and securitization do not directly reduce the risk of moral hazard or the bank's risk in making loans.

Which of the Following Reduces the Risk of Moral Hazard