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:

Hidden Costs

Expenses that are not immediately apparent or explicitly billed but affect the total cost of ownership or operation.

Academic Journal

A periodical publication dedicated to disseminating research and scholarship in a specific academic field, often peer-reviewed.

Scholarly Colleagues

Individuals working in the same field or profession, especially in academic contexts, who engage in research or education.

Logic Models

Visual representations that outline the process through which inputs (resources) are transformed into outcomes and impacts, highlighting the underlying theory of change.