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.

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Definitions:

Welfare Capitalism

An economic system that combines a mostly market-based economy with extensive social welfare programs.

Paternalistic Nature

An approach or attitude in management in which an entity controls the needs of people in a manner similar to a father's relationship with his children, often by providing for them without giving them rights or responsibilities.

Employee Voice

The means by which workers express their opinions, grievances, and suggestions regarding workplace policies and practices.

Steel Industry

A sector of the economy focused on the production, processing, and sale of steel and steel products.