In order to control the risk exposure on their business loans most banks use both price and credit rationing to regulate the size and composition of their loan portfolios.

Question

Quizplus · Accepted Answer

Banks use a combination of price and credit rationing to manage their loan portfolios and control their risk exposure. Price rationing involves adjusting the interest rates charged on loans to reflect the level of risk involved, while credit rationing involves limiting the availability of credit to higher-risk borrowers. Both approaches are used to ensure that banks maintain a balanced and diversified loan portfolio that is aligned with their risk tolerance and profitability goals.

In Order to Control the Risk Exposure on Their Business