Financial intermediaries are better equipped than individuals to screen out bad credit risks from good ones,thus reducing losses due to
A)adverse selection.
B)moral hazard.
C)free-riding.
D)economies of scope.

Question

Quizplus · Accepted Answer

Financial intermediaries have access to more information and resources to evaluate potential borrowers, which enables them to identify and avoid bad credit risks. This helps to reduce losses due to adverse selection, which is the risk that the lender will select borrowers who are more likely to default on their loans. Moral hazard and free-riding are not directly related to the screening process. Economies of scope are a different concept that refers to the cost savings that can result from producing multiple products or services together.

Financial Intermediaries Are Better Equipped Than Individuals to Screen Out