Asked by Kibre Dubiso on Jul 22, 2024
Verified
A lender is protected against anticipated credit risks by the loan's covenant provisions as interest rates are fixed by the Federal Reserve Bank.
Covenant Provisions
Conditions set by lenders in a loan or bond agreement that the borrower must abide by, aimed at protecting the lender's interests.
Credit Risks
This is the risk that a borrower will default on any type of debt by failing to make required payments, impacting lenders and investors.
- Understand the protective role of loan covenant provisions against credit risks.
Verified Answer
NG
Natalie GoetterJul 24, 2024
Final Answer :
False
Explanation :
Covenant provisions in a loan agreement can provide some protection against credit risks, but interest rates are not fixed by the Federal Reserve Bank. Interest rates are influenced by the Federal Reserve through its monetary policy, but ultimately determined by market forces.
Learning Objectives
- Understand the protective role of loan covenant provisions against credit risks.
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