Restrictive covenants are required by lenders to help solve the problem of
A) adverse selection.
B) moral hazard.
C) transactions costs.
D) all of the above.

Question

Quizplus · Accepted Answer

Restrictive covenants are used by lenders to mitigate the problem of moral hazard. They are conditions placed in loan agreements to limit the actions of borrowers that might harm the lender's interests, such as taking on excessive risk.

Restrictive Covenants Are Required by Lenders to Help Solve the Problem