Fill in the Blank You might be more willing to lend to a bank at an interest of 4% rather than to lend to a friend at an interest of 10%, because you want to avoid moral hazard (choose and copy one of the following terms: adverse selection; moral hazard; agency problem; transaction costs; free-rider problem). Because of the adverse selection problem: a. bad credit risks are more likely to seek loans causing lenders to keep increasing risk premiums. b. lenders will write debt contracts that restrict certain activities of borrowers. c. why lenders refuse loans to individuals with high net worth. d. lenders rarely secure loans with collateral. One of the following is an example of how banks can reduce their transaction costs: a spreading the costs of hiring professional credit officers. b. spreading the cost of branches and office equipment. c. spreading the cost of writing a one-time loan contract tailored to a specific client. d. spreading the cost of monitoring and enforcing debt contracts. Clear my choice Concerning an adjustable rate mortgage (ARM), ONE of the following is NOT TRUE O a. If the base interest rate increases, your monthly mortgage will go up b. you always pay fixed principal/interest instalments over the duration of your mortgage c. the mortgage rate is tied to a base interest rate and changes accordingly. d. the interest rate on your mortgage will increase if the base interest rate increases Clear my choice