For restrictive covenants to help reduce the moral hazard problem,they must be ________ by the lender.
A)monitored and enforced
B)written in all capitals
C)easily changed
D)impossible to remove

Question

Quizplus · Accepted Answer

Restrictive covenants are agreements between the borrower and the lender that specify certain limitations or prohibitions on the borrower's behavior. These covenants are designed to reduce the lender's risk of moral hazard, which occurs when the borrower has an incentive to engage in risky behavior because they do not bear the full cost of that behavior. To be effective in reducing moral hazard, restrictive covenants must be monitored and enforced by the lender. This means that the lender must actively track the borrower's behavior and take action if they violate the covenant.

For Restrictive Covenants to Help Reduce the Moral Hazard Problem,they