To Reduce Moral Hazard Problems,banks Include Restrictive Covenants in Loan

question 108

Multiple Choice

To reduce moral hazard problems,banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective,banks must also

• A)monitor and enforce them.
• B)be willing to rewrite the contract if the borrower cannot comply with the restrictions.
• C)trust the borrower to do the right thing.
• D)be prepared to extend the deadline when the borrower needs more time to comply.

Identify the implications of habit-driven thinking on the recreation of institutional structures.

Understand the classification and reporting requirements for different types of investment securities.

Comprehend the equity method of accounting and its implications on dividends and investment valuation.

Recognize the accounting treatment of unrealized holding gains and losses for various investment categories.

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Definitions:

Production Possibilities Curve

A graphical representation showing the maximum combinations of goods or services that can be produced with a fixed amount of resources.

Operating Inefficiently

Conducting business in a manner that does not maximize output or profits relative to input and resources.

Technological Advance

The development and application of innovative tools, machines, systems, and methods to improve processes, productivity, and efficiency.

Production Possibilities Curve

A graphical representation showing the maximum combination of goods or services that can be produced with a fixed amount of resources.