If the parent ____ the debt of the subsidiary, the subsidiary's borrowing capacity might be ____.
A) does not back; increased
B) backs; reduced
C) does not back; reduced
D) backs; increased
E) does not back; reduced AND backs; increased

Question

Quizplus · Accepted Answer

When a parent company backs the debt of its subsidiary, it provides additional assurance to lenders, potentially increasing the subsidiary's borrowing capacity. Conversely, if the parent does not back the subsidiary's debt, lenders may perceive higher risk, which could reduce the subsidiary's borrowing capacity. Thus, both scenarios described in E are correct.

If the Parent ____ the Debt of the Subsidiary, the Subsidiary's