Suppose Juanita comes into a large sum of money and decides to lend the money to earn interest. She realizes that she does not have the expertise to evaluate the credit risks of potential borrowers. As she struggles to evaluate these risks, Juanita ultimately decides that her local bank has experience and knowledge about potential borrowers and their probability of repayment, and she decides to lend through the local bank, a financial intermediary. This is an example of how financial intermediaries can help solve the problem of: Insolvency? Moral Hazard? Adverse Selection?
Answer is c
Adverse selection is one in which one player have more knowledge or more information which the other player doesnot have.
Suppose Juanita comes into a large sum of money and decides to lend the money to...