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When a financial institution is assessing applicants for potential loans it faces information asymmetry problems in the form of ' adverse selection ' and '

When a financial institution is assessing applicants for potential loans it faces information asymmetry problems in the form of 'adverse selection' and 'moral hazard'.

  1. Provide one example of an 'adverse selection' problem that a financial institution faces.
  2. Provide one example of a 'moral hazard' problem that a financial institution faces.
  3. Then provide another good example of how these problems are addressed by a bank.

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