Question

Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The bank, as a financial intermediary, is facing a problem of

A. symmetric information.
B. moral hazard.
C. adverse selection.
D. liabilities

Answer 1

Answer: Option (B)

Step-by-step explanation:

In discipline such as economics, the situation of moral hazard tends to take place when an individual/party increase their vulnerability to the risk especially when the individual/party is insured, or when the individual takes more risks since other entities are bearing the cost associated with the risks. It may take place where the actions taken by a party may further change to disadvantage of another party once the financial transaction has already been dealt with .