Although Restrictive Covenants Can Potentially Reduce Moral Hazard,a Problem with Restrictive

question 44

Multiple Choice

Although restrictive covenants can potentially reduce moral hazard,a problem with restrictive covenants is that

• A)borrowers may find loopholes that make the covenants ineffective.
• B)they are inexpensive to monitor and enforce.
• C)too many resources may be devoted to monitoring and enforcing them,as debtholders duplicate others' monitoring and enforcement efforts.
• D)they reduce the value of the debt contract.

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