Lenders Recognize That by Having an Interest in Collateral They

question 36

Multiple Choice

Lenders recognize that by having an interest in collateral they can reduce losses if the borrowing firm defaults, ________.

• A) and the presence of collateral reduces the risk of default
• B) but the presence of collateral has no impact on the risk of default
• C) therefore lenders prefer to lend to customers from whom they are able to demand collateral
• D) therefore lenders will impose a higher interest rate on unsecured long-term borrowing

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Definitions:

Insurance Policy

A contract between an insurer and a policyholder that specifies the terms under which the insurer agrees to compensate the policyholder for loss caused by specific events.

Declaratory Judgment Action

A legal procedure wherein the court determines the rights of parties without ordering any specific action or awarding damages.

Subrogation Action

A legal action where an insurer seeks to recover the amount of an insurance claim paid to the insured from the party responsible for causing the loss.

Indemnity Action

A legal action seeking compensation for damages or loss from another party as recompense for harm suffered.