A Debt Contract Is Said to Be Incentive Compatible If

question 45

Multiple Choice

A debt contract is said to be incentive compatible if

• A) the borrower's net worth reduces the probability of moral hazard.
• B) restrictive covenants limit the type of activities that can be undertaken by the borrower.
• C) both A and B of the above occur.
• D) neither A nor B of the above occur.

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Definitions:

Canadian Dollar Depreciates

A decrease in the value of the Canadian dollar relative to another currency.

Canadian Imports

pertains to goods and services brought into Canada from other countries, contributing to the country’s supply of products available for consumption and use.

Canadian Customers

Individuals or entities in Canada who purchase goods or services, reflecting the consumer market in that geographical area.

Japanese Yen

The official currency of Japan, known for being one of the most traded currencies in the world.