HW4_Ans - sold if the borrower defaults Furthermore...

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NAME: ________________________________ EC370 – Fall 2008 HW4 Answer KEY Write your answers to the multiple choice questions in the appropriate space using CAPITAL LETTERS. 1) A 10) C 19) A 2) D 11) A 20) B 3) A 12) A 21) D 4) A 13) C 22) A 5) B 14) B 23) A 6) A 15) C 24) C 7) B 16) C 25) A 8) D 17) B 9) B 18) B 26) How does collateral help to reduce the adverse selection problem in credit markets? Collateral is property that is promised to the lender if the borrower defaults thus reducing the lender's losses. Lenders are more willing to make loans when there is collateral that can be
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Unformatted text preview: sold if the borrower defaults. Furthermore, borrowers can signal their type with the quality of collateral pledged. 27) Using T-accounts show what happens to reserves at Security National Bank if one individual deposits $1000 in cash into her checking account and another individual withdraws $750 in cash from her checking account. Security National Bank Assets Liabilities Reserves + $250 Checkable deposits + $250 It is fine to have this broken out into two separate transactions. The line item (reservers and checkable deposits) that has been adjusted must be listed for credit....
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