Of the Following Methods That Banks Might Use to Reduce

question 16

Multiple Choice

Of the following methods that banks might use to reduce moral hazard problems,the one not legally permitted in the United States is the requirement that

• A) firms keep compensating balances at the banks from which they obtain their loans.
• B) firms place on their board of directors an officer from the bank.
• C) loan contracts include restrictive covenants.
• D) individuals provide detailed credit histories to bank loan officers.

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Definitions:

Direct Materials

Raw materials that are directly incorporated into a finished product and can be directly attributed to the product.

Manufacturing Overhead

All indirect costs associated with the production process of a company, including utilities, depreciation, and salaries of non-direct labor.

Work In Process

Inventory that is currently being manufactured but is not yet complete.

Direct Materials

Direct materials refer to the raw materials that are directly incorporated into a finished product and are integral to its production, easily traceable to the goods being produced.