Adverse selection and moral hazard are two reasons due to which there failure in the market. The problems of market failure and adverse selection in financial market are- There is an asymmetric information prevailing in the market between the buyers and sellers, or bakers and lenders. For this there is a loss in net output and an inefficiency in the market. Many good customers are not valued due to the misleading information. The amount of non-performing loans increases in the banking sectors due to this problems and many good customers are deprived from loans and other facilities. For adverse selection problem bad shares are traded more in the market comparing the good company shares which leads to a loss for investors in the share market. For example in the insurance market due to adverse selection- A smoker or an healthy person getting or buying insurance acting as a non-smoker or an unhealthy person which increases the risk of insurance company of having loss.