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.

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.

_