Which of the following are accurate statements concerning the role that restrictive covenants play in reducing moral hazard in financial markets?
A) Covenants reduce moral hazard by restricting borrowers' undesirable behavior.
B) Covenants require that borrowers keep collateral in good condition.
C) Covenants require periodic accounting statements and income reports.
D) All of the above.
E) Only A and B of the above.

Question

Quizplus · Accepted Answer

Restrictive covenants play a crucial role in mitigating moral hazard in financial markets by imposing restrictions on borrowers to prevent undesirable behavior, requiring the maintenance of collateral, and mandating the provision of periodic financial statements. These measures help ensure that borrowers act in the lenders' interests, reducing the risk of default and protecting the lenders' investments.

Which of the Following Are Accurate Statements Concerning the Role