The Purpose of Collateral and Restrictive Covenants Is to Reduce

question 104

Multiple Choice

The purpose of collateral and restrictive covenants is to reduce ________ in debt contracts.

• A) adverse selection
• B) transactions costs
• C) moral hazard
• D) loan amounts

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Definitions:

Statement Of Income

A financial report that shows a company's revenues, expenses, and profits over a specific period, typically a quarter or year, also known as an income statement.

Unrealized Gains

Increases in the value of assets that a company holds which have not yet been sold and thus not "realized."

Non-Strategic Investments

Non-strategic investments are investments made by a company that do not align directly with its core business activities or strategic goals.

Fair Value

The estimated market price of an asset or liability, reflecting the amount for which it could be exchanged in an orderly transaction between knowledgeable, willing parties.