In the context of financial markets, 'Adverse Selection' before a loan is made refers to:
A. Borrowers with higher risk being more likely to seek loans
B. Lenders always having perfect information
C. Borrowers becoming riskier after receiving loans
D. Only the problem of monitoring after the loan
Answer: Option A
Solution (By JKSSB Mock Tests)
Adverse selection in credit markets occurs when higher-risk borrowers are more eager to borrow at any given interest rate, so that the pool of applicants becomes riskier as the interest rate rises.
No comments yet. Be the first to start the discussion!