Asked by Madison Hathaway on Sep 24, 2024
Verified
A bank can decrease the degree of moral hazard if it
A) Monitors the borrowers behaviors
B) Placing covenants on the loan
C) Both of the above
D) None of the above
Covenants
Agreements or clauses, especially in contracts and property leases, that stipulate actions the parties must perform or avoid.
Monitoring
The process of systematically observing, checking, and recording activities or data to ensure standards are met or progress is being made.
- Determine methods for reducing moral hazard in diverse environments.
Verified Answer
AS
Aeronna steele3 days ago
Final Answer :
C
Explanation :
Monitoring the borrower's behaviors allows the bank to catch any potential moral hazard and take appropriate actions, while placing covenants on the loan provides incentives for the borrower to behave responsibly and reduces the likelihood of moral hazard. Combining these two methods can effectively decrease the degree of moral hazard in lending.
Learning Objectives
- Determine methods for reducing moral hazard in diverse environments.
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