Question

Kabir just applied for a mortgage loan in the state bank of india (sbi). the loan officer tells him that to get the loan, he must leave the house as collateral with the bank until he pays back the loan. which problem of asymmetric information is the bank trying to solve?

Answer 1

The bank is trying to solve the problem of adverse selection.

Step-by-step explanation:

The bank is trying to solve the problem of adverse selection. Adverse selection refers to the situation where one party has more information than the other party in a transaction. In this case, the bank wants to ensure that Kabir is a reliable borrower who will repay the loan. By requiring him to leave the house as collateral, the bank reduces the risk of lending to a borrower who may default.