Requiring Collateral Reduces the Probability of Default After a Loan

question 63

Multiple Choice

Requiring collateral reduces the probability of default after a loan is made, by giving borrowers the incentive to act prudently in order to avoid the loss of collateral, which reduces:

• A)adverse selection.
• B)moral hazard.
• C)interest rate risk.
• D)bank panics.

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Definitions:

Normal Minds

Refers to the psychological state or cognitive abilities perceived as within the typical or average range of human functioning.

Dialectical Tensions

Refers to the conflicts between two opposing forces or desires that are inherent in relationships, often driving their dynamic change.

Systemic Therapies

Therapies that consider the individual within the context of systems, such as family or society, to address issues in a holistic manner.

Therapeutic Double Binds

A scenario in therapy where the client faces two contradictory demands or messages, making it challenging for the client to decide on a course of action.