Adverse selection ________.
A) is a problem of symmetric information
B) occurs after the transaction
C) is not important in financial markets
D) why large firms are more likely to obtain funds from securities markets

Question

Quizplus · Accepted Answer

Adverse selection is a problem that arises before a transaction occurs, when potential buyers and sellers have asymmetric information (one party has more or better information than the other). This issue is particularly relevant in financial markets, where the quality of goods (e.g., the borrower's ability to repay a loan) is not known beforehand. Large firms are more likely to obtain funds from securities markets because they are generally better known and can provide more information, reducing the problem of adverse selection.

Adverse Selection ________