Loan Sales Do Not Completely Protect the Lending FI from Credit

question 67

Multiple Choice

Loan sales do not completely protect the lending FI from credit risk exposure because

• A)defaults may reduce the ability of the lending bank to sell loans in the future.
• B)a loan sale contains an implicit quality guarantee by the lending FI.
• C)loans are always sold with recourse.
• D)regulators require the lending FI to make restitution for defaulted loans.
• E)loan sales force the FI to mark its remaining loans to market prices.

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Definitions:

Atherosclerosis

A condition characterized by the hardening and narrowing of the arteries due to the buildup of plaque, which can restrict blood flow.

Tunica Intima

The innermost layer of a blood vessel, which lines the lumen of vessels and is composed of a thin layer of endothelial cells.

Arterial Walls

The layered structure of arteries, consisting of an inner lining, a middle layer of smooth muscle, and an outer layer of connective tissue.

Arterioles

Small blood vessels that extend from arteries and lead to capillaries, controlling blood flow and pressure.