Which One of the Following Statements Correctly Describes the Bonding

question 2

Multiple Choice

Which one of the following statements correctly describes the bonding hypothesis?

• A)Banks require covenants when lending to risky companies.
• B)The large shareholder commits him/herself not to expropriate the minority shareholders by subjecting the firm to more stringent foreign regulation.
• C)Shareholders bond themselves to managers by agreeing not to sell their shares over a specified period.
• D)None of the above.

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Definitions:

Loanable Funds

Represents the money available for borrowing in the financial markets, determined by savings and the supply of credit.

Equilibrium Interest Rate

The interest rate at which the demand for money balances equals the supply of money in circulation, leading to a stable economic environment.

Loanable Funds

A term in economics referring to all the money available for lending by banks or other financial institutions, influenced by savings and investments.

Business Borrowing

The act of obtaining funds by businesses from external sources like banks or financial institutions to finance operations or investments.