Explicit Provisions in a Loan Agreement That Prohibit the Borrower

question 68

Multiple Choice

Explicit provisions in a loan agreement that prohibit the borrower from engaging in certain activities is called

• A) credit rationing.
• B) restrictive covenants.
• C) credit-risk analysis.
• D) adverse selection.

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Definitions:

Local Currency

The currency that is legally accepted within a country and typically used for all financial transactions within that geographical boundary.

Flexible Exchange Rates

A system where the value of a currency is determined by the foreign exchange market, depending on the supply and demand for that currency.

International Monetary Reserves

Assets that central banks and monetary authorities hold in foreign currencies, including foreign banknotes, bank deposits, bonds, treasury bills, and other government securities, to back its liabilities.

Demand for Pounds

Refers to the desire or requirement for British pounds in the foreign exchange market, usually driven by trade, investment, or speculation needs.