Lenders Require Collateral to

question 57

Multiple Choice

Lenders require collateral to

• A) reduce the risk of default.
• B) control the borrowing firm.
• C) reduce the losses if the borrower defaults.
• D) extend to the borrower an unsecured loan.

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Definitions:

Externality

A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved.

Efficient Level

The point at which resources are utilized in the most productive way, maximizing output or satisfaction without wasting any resources.

Price Charged

The amount of money demanded by a seller for a product or service.

Perfectly Competitive

A market structure characterized by many buyers and sellers, homogenous products, and free entry and exit, leading to efficient pricing and output levels.