13-27 The ability to provide loan commitments is a signal to borrowers that the FI has a lower risk portfolio.

Question

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Loan commitments are a promise by the financial institution to provide a loan to the borrower if certain conditions are met. The ability to provide loan commitments shows that the FI has evaluated the borrower's creditworthiness and is confident in their ability to pay back the loan. This indicates a lower risk portfolio and strengthens the FI's reputation in the market.

13-27 the Ability to Provide Loan Commitments Is a Signal