(Solved):Customers who have long-term relationships with banks a) pose particular problems with respect to adverse selection. b) often obtain credit at a lower rate or with fewer restrictions. c) pose pa… View Answer…

 

Question

Customers who have long-term relationships with banks

a) pose particular problems with respect to adverse selection.

b) often obtain credit at a lower rate or with fewer restrictions.

c) pose particular problems with respect to moral hazard.

d) are more likely to default or violate restrictive covenants.

Select one and explain.

 

EXPERT ANSWER

a) Incorrect

The longer the relationship, the better the information the bank has and the better it is able to distinguish between good clients and

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