Question

1. Asymmetric information arises when borrowers possess information about their opportunities or activities that they don't...

1. Asymmetric information arises

when borrowers possess information about their opportunities or activities that they don't disclose to lenders or creditors

when assets are not highly liquid

when one holds assets that are not diversified

none of the listed answers are correct
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Homework Answers

Answer #1

1. Asymmetric information arises

when borrowers possess information about their opportunities or activities that they don't disclose to lenders or creditors

Option A is correct.

Asymmetric information means when one party has more information than the other party in a contract. Here, borrowers will have more information about their opportunities or activities, and creditors don't have

Option B is incorrect because when assets are not highly liquid, it is said to be illiquid

Option C is incorrect because when one holds assets that are not diversified it is said to be undiversified portfolio

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