Which of the Following Situation Is Similar to the Externality

question 30

Multiple Choice

Which of the following situation is similar to the externality effect?

• A) Exercising an adverse material change in conditions clause as a last resort, thereby cancelling or repricing a loan commitment.
• B) Increase in the cost of funds above normal levels while many FIs scramble for funds to meet their commitments to customers during a credit crunch.
• C) In a loan commitment, the borrower takes down only part of the funds over the specified time-period.
• D) The buyer of a commercial letter of credit fails to perform as promised under a contractual obligation.

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Definitions:

Preincorporation Contracts

Agreements entered into on behalf of a corporation not yet formally established, raising questions about liability and authority.

Promoter

A promoter is an individual or company involved in founding or organizing a business or enterprise, typically responsible for raising capital, arranging for necessary legal documents, and setting up operations.

Personally Liable

The legal responsibility of an individual to satisfy debts or obligations from their own assets.

Preincorporation Subscription

An agreement by an investor to purchase stock in a corporation, made before the corporation is legally formed.