The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season. The small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent. This is an example of:
A. default risk.
B. a lack of diversification for the bank.
C. liquidity risk.
D. information asymmetry.
Answer: D
Economics
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