Banks help mitigate the problem of adverse selection in lending by:
A) developing expertise in evaluating the business prospects of loan applicants.
B) making loans to many different types of borrowers.
C) adjusting the amount of the loan to fit the requirements of the borrower.
D) monitoring the business after a loan is made to the business.

Question

Quizplus · Accepted Answer

Banks develop expertise in evaluating the business prospects of loan applicants to better assess the risk of lending, thereby reducing the problem of adverse selection.

Banks Help Mitigate the Problem of Adverse Selection in Lending