When the Federal Reserve made rescue loans without recourse, if the borrower defaulted, the Fed would be entitled to receive:
A)the amount originally lent to the borrower.
B)only the value of the collateral used to secure the loan.
C)the difference between the amount originally lent and the value of the collateral.
D)the value of the collateral plus the difference between the amount originally lent and the value of the collateral.

Question

Quizplus · Accepted Answer

When the Federal Reserve makes rescue loans without recourse, the borrower is not liable for the repayment of the loan in case of default. Therefore, the only recourse for the Fed is to seize and liquidate the collateral used to secure the loan. Hence, the Fed would be entitled to receive only the value of the collateral used to secure the loan.

When the Federal Reserve Made Rescue Loans Without Recourse, If