Questions
BFF2401 - S2 2025 Moodle Exercise 2
Single choice
Which of the following refers to restrictions in loan and bond agreements that encourage or forbid certain actions by the borrower?
Options
A.a. Implicit contracts.
B.b. Covenants.
C.c. RAROC.
D.d. Credit rationing.
E.e. Mortality rates.
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Step-by-Step Analysis
The question asks about restrictions in loan and bond agreements that guide or limit what the borrower can or cannot do.
Option a: 'Implicit contracts.' While there are informal expectations in relationships, implicit contracts......Login to view full explanationLog in for full answers
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Why are covenant-lite loans potentially riskier for lenders?
Covenants are restrictions written into bond and loan contracts either limiting or encouraging the borrower's actions that affect the probability of repayment.
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