Which of the Following Is NOT a Contractual Mechanism Used

question 75

Multiple Choice

Which of the following is NOT a contractual mechanism used by FIs to control credit risks?

• A)Diversifying across different types of risky borrowers.
• B)Requiring higher interest rate spreads for higher risk borrowers.
• C)Requiring more collateral for the bank over the assets of more risky borrowers.
• D)Making lending decisions only in centralized locations.
• E)Placing more restrictive covenants on the actions of more risky borrowers.

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Definitions:

Gliding

The motion or activity involving smooth, continuous movement with little to no friction or resistance.

Pivot

A central point around which something rotates or oscillates.

Circumduction

Movement in a circular motion.

Abduction

The action of moving a limb or different body part away from the body's center line or apart from another section.