Assume the market rate of interest on 5-year Treasuries is 5 percent. Bond A has a coupon rate of 6 percent and Bond B has a coupon rate of 7 percent. Both occur before the loan is made. Both occur after the loan is made. Adverse selection occurs before the loan is made and moral hazard afterwards.
Adverse selection occurs after the loan is made and moral hazard beforehand.
True b. False 33. 18.0 percent 37. Increasing a bank's provision for loan losses will tend to reduce its reported profits.