One Reason Lenders May Require a Large Net Worth Before

question 38

Multiple Choice

One reason lenders may require a large net worth before making a loan is because:

• A) then the borrower does not need the funds.
• B) it tells the lender the firm has good employees.
• C) it is one way to treat the problem of moral hazard.
• D) banking laws require firms have significant net worth before a bank can make a loan.

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Definitions:

Material Representations

Statements or assertions of fact that significantly influence the decision-making of another party in a legal agreement.

Innocent Misrepresentations

False statements made without fault regarding a material fact that induce someone into a contract.

Punitive Damages

are monetary compensations awarded in a lawsuit as a punishment to the defendant and to deter future similar acts.

Fraud

A deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.