Question

A person takes out a car loan at a bank, but actually uses the money to play the lottery. This situation is an example of which problem banks face in lending?

a.adverse selection
b.moral hazard
c.interest rate
d.risk liquidity.

Answer 1

Answer:

b.moral hazard

Explanation:

If a person borrow from bank to buy car but actually he borrow to pay lottery. in this case the person will face Moral Hazards.