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A colleague tells you that he can get a business loan from the bank, but the rate seems very high for what your colleague considers a low-risk loan.
Use the following table to classify each explanation for the high rate as an instance of either adverse selection or moral hazard.
Explanation for High Rate:——————————————-The bank cannot determine which borrowers are likely to pay back the loan and which are likely to default. __
You advise your friend to disclose all of his past financial records and credit history to the bank to show that he is likely to pay back the loan.
_
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