Which One of the Following Statements Is TRUE

question 19

Multiple Choice

Which one of the following statements is TRUE?

• A) When lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake.
• B) An agency relationship is when a principal works for an agent.
• C) In an agency relationship, the agent delegates authority to the principal.
• D) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
• E) When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease.

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Definitions:

Money Demand

The total amount of money that households and businesses wish to hold in the form of cash or deposits, at a given time.

Quantity of Money

The total amount of money available in an economy, including currency and balances held in checking and savings accounts.

Prices Fall

A situation where the amount of money required to purchase goods or services decreases, typically due to reduced demand or increased supply.

Quantity Theory

An economic theory that relates the level of money supply in an economy to the level of prices and the volume of production.