Which of the Following Situations Is Similar to the Externality

question 38

Multiple Choice

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

• A)Exercising an adverse material change in conditions clause as a last resort, thereby canceling 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.
• E)All of the above.

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Definitions:

Trading Securities

Financial instruments held by a firm for the purpose of short-term profit through trading on a stock exchange.

Sale

The act of selling a product or service in exchange for money or other compensation.

Equity Securities

Financial instruments that represent ownership interest in a company, such as stocks.

Significant Influence

The power to participate in the financial and operating policy decisions of an investment but is not control or joint control of those policies.