Question
assume that in a market both risk (low-quality)and safe (high quality) borrowers exist. however, lenders cannot distiguish high-low quality borrowers (that is, those who will
assume that in a market both risk (low-quality)and safe (high quality) borrowers exist. however, lenders cannot distiguish high-low quality borrowers (that is, those who will repay their loans and those who will default)before the loan contract os offered. what strategy the lender could implement here
a. Not to operate in this market, as this is risky.
b. Offering same interest rate to both borrower types, which is higher than market equilibrium interest rate.
c. offer group lending with group based repayment liability.
d. Offering same interest rate to both borrower types, which is lowerr than market equilibrium interest rate.
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