When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in strategic holding out. collusive behavior. coercive bargaining. credit rationing.

When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in strategic holding out. collusive behavior. coercive bargaining. credit rationing.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle

Section: Chapter Questions

Problem 20MCQ

See similar textbooks

Related questions

Q: Loan structuring is the process of designing a loan to satisfy the financing demands of a business…

Q: Which one of the following statements regarding the loans market is false? a) The principal-agent…

A: Please see the next step for the Answer

Q: Which of the following is a reason that banks may favor fee compensation over balance compensation?…

A: In order to increase their deposits and use them for loan, banks usually prefer fee compensation…

Q: The objectives of Receivables Management are as follows: a. All of above O b. To maintain…

A: Lets understand the meaning of receivable management. As the term suggest, receivable management is…

Q: What is adverse selection? Why does it predict that lenders will prefer to arrange loans through a…

A: The loan is the funds that a borrower takes from the lender at a certain rate of interest for a…

Q: Bank Muscat advances secured and unsecured loans to their customers. If Bank Muscat is issuing…

A: Secured loans are the loans which provided to borrower after taking collateral security. Unsecured…

Q: Collateral does not reduce the risk of a loan per se, because A. it is not part of the loan…

A: Collateral = It refers to asset, being pledged by bank against the loan given to its customer in…

Q: Overdrafts are a result of a. loans made against certificates of deposit b. banks paying wire…

A: Very easy and low cost convenient way of getting loan are draft loans.

Q: How can bankers be spotting potential fraud among the loan granted

A: Bank loan means the loan given by the bank to the borrower. This loan can be provided for short term…

Q: Your company provides credit to customers. Someof these customers default on their loans, with…

A: Discriminant analysis is the analysis which provide the permission to organization in determining…

Q: Securitization of loans (mortgages) does not bring any benefits to a Commercial Banks balance sheet.…

A: Securitization is a process by which a bank sells of their poor/unrecoverable assets are sold to the…

Q: A commercial bank in Barbados faces serious liquidity problems; however, they have an asset that has…

A: Liquidity risk refers to the risk which shows the inability for meeting the obligations of…

Q: Could efforts to avoid conflicts of interest lead an investment bank to provide poor service to a…

A: An investment is a financial institution that provides services to the company. Mainly, the clients…

Q: refers to the possibility that the debtors supported by bank credit are unable or unwilling to repay…

A: Commercial banks are providers of funds and financing to their customers who are in need of funds.…

Q: Which of the following has caused banks difficulty in estimating liquidity needs? A. competition for…

A: It is the institution that deals with financial and monetary transactions in the economy.

Q: Why can’t bank lend without a written loan policy? Explain in detail.

A: Lending procedure: There are certain steps that are followed in the procedure. this includes the…

Q: Question: Which of the following is not a control over debtors? a. investigation the credit…

A: Debtor management systems refers to all the activities that a company undertakes to keep control…

Q: 2) To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order…

A: To address the moral hazard problems associated with lending, banks often include restrictive…

Q: If bad credit risks are the ones who most actively seek loans and, therefore, receive them from…

A: In this scenario, bad credit risks actively seeking loans create a situation where the lender…

Q: Loan covenants are used for which of the following reasons?a. To protect the lender from the…

Q: Which of the following decreases the likelihood of bank failures by keeping banks from making risky…

A: Option d is correct.

Q: Bank regulation cannot eliminate risk and does not prevent bank failure. It cannot guarantee that…

A: Bank regulation is an important part of the financial system that helps to protect the public from…

Q: 2. Substantial amount of credit losses is due to poor loan monitoring. In view of this, suggest how…

A: Loan is when the funds are given to some other party in an exchange regarding the repayment of the…

Q: heir loans in one industry so that they can specialize on that industry and reduce the credit risk…

A: Credit risk means risk of default in payment obligation by borrower.

Q: Which type of information asymmetry explains why bad credit risks are more likely to seek bank…

A: Adverse selection, as a rule, alludes to a circumstance where dealers have data that buyers do not…

Q: Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high…

A: Analysis of the given option: i) To reduce the exposure to diversification risk Remark-By…

Q: Which of the following is not likely cause of Default? Select one: a.Lack of compliance with loan…

A: The term “Default” in terms of a loan refers to the failure of repayment of the loan by the borrower…

Q: . Transferring the credit risk of loans from their balance sheet to other fin .Reducing due…

A: Loans after some time increase the risk and institutions giving loans become highly illiquid and…

Q: How do adverse selection and moral hazard affect the bank lending function? And How can minimise…

A: A Moral hazard occurs when one party tends to behave in the riskiest manner if it is protected…

Q: What does an increasing collection period for accounts receivable suggest about a firm's credit…

A: The credit policy of a firm means the policies and conditions attached to lending goods and services…

Q: The following is true of deposit insurance, except a Depositor no longer has incentives to…

A: Deposit insurance aims to protect depositors from the risk of losing their deposits in case of a…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Determine the variables in the question:

VIEW

Step 2: Analysis of the given options:

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

2. Substantial amount of credit losses is due to poor loan monitoring. In view of this, suggest how might one safeguard a bank's interest when providing loans.
Which type of information asymmetry explains why bad credit risks are more likely to seek bank loans? A. Moral hazard B. Adverse selection C. Principal-agent problem
If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of a. costly state verification. b. free-riding. O c. moral hazard. O d. adverse selection.
What is adverse selection? Why does it predict that lenders will prefer to arrange loans through a commercial bank rather than deal directly with a borrower?
Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high interest rates? To reduce the exposure to diversification risk. To reduce the exposure to interest rate risk. To reduce the exposure to credit risk. To reduce transactions costs To reduce the free-rider problem.
refers to the possibility that the debtors supported by bank credit are unable or unwilling to repay the debts on time as stipulated in the contract for various reasons, causing losses to the bank. (A) Credit risk (B) Market risk (C) Operational risk (D) Liquidity risk
Overdrafts are a result of a.loans made against certificates of deposit b.banks paying wire transfers made during one business day c.banks extending credit beyond the amount specified in a line of credit d.banks paying on checks or wire transfers drawn on uncollected balances. Loan participations are: a. parts of loans that are sold to banks b. participation in the underwriting c. parts of securitized investments d. downstream investment Convenience use of credit cards refers to a. the line of credit may be raised as needed b. amounts owed being paid in full when billed c. the open-end use of the card d. none of the above
What does an increasing collection period for accounts receivable suggest about a firm's credit policy? Select one: O A. The collection period has no relationship to a firm's credit policy O B. The firm is probably losing qualified customers. C. The credit policy may be too lenient. O D. The credit policy is too restrictive.
Why can’t bank lend without a written loan policy? Explain in detail. No plagiarism.
The objectives of Receivables Management are as follows: a. All of above O b. To maintain the debtors at minimum according to the credit policy offered to customers. O C. To control the cost of receivables, cost of collection, administrative expenses, bad debts and opportunity cost of funds blocked in the receivables. O d. To obtain optimum (non maximum) value of sales;
Bank Muscat advances secured and unsecured loans to their customers. If Bank Muscat is issuing secured loans, identify which one of the following is the reason for bank to issue secured loan? a. To increase interest on loans by the banks b. To sell the collateral in the event of non-refund of the loan c. To have long standing relationship with customer d. To reduce the loan amount and time period
2) To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also A) monitor and enforce them. B) be willing to rewrite the contract if the borrower cannot comply with the restrictions. C) trust the borrower to do the right thing. D) be prepared to extend the deadline when the borrower needs more time to comply.