1. Which of the following is a contractual mechanism used by Fls to control credit risk? a) Avoiding assets that have high systematic risks b) Investing in assets that have low unsystematic risks c) Placing more restrictive covenants on the actions of more risky borrowers d) None of the above e) Allocating more assets in those that have high fire sale prices relative to the value (edited)
2. Which of the following is NOT a reason for an Fl to sell loans with recourse? a) To reduce capital requirements b) To avoid credit risk exposure c) To control interest rate risk exposure d) To avoid regulatory scrutiny e) To make it possible to lend large amounts to borrower
3. Which of the following is TRUE concerning loans sold with recourse? a) Most loans are sold with recourse? b) The buyer cannot put the loan back to the selling Fl c) The Fl has no explicit liability if the loan goes bad d) The Fl that originated the loan retains a contingent credit risk liability e) The loan sale is technically removed from the balance sheet