An adverse material changes in conditions clause is included in loan commitments to protect the FI against:
A)funding risk
B)interest rate risk
C)takedown risk
D)credit risk

Question

Quizplus · Accepted Answer

An adverse material changes in conditions clause is included in loan commitments to protect the FI against credit risk. This clause allows the lender to withdraw the commitment or adjust pricing/terms if significant negative changes occur in the borrower's financial condition, business outlook, or the overall economic environment. It helps the lender to mitigate the risk of lending funds to a deteriorating or high-risk borrower, reducing the potential losses from default or non-payment. The other options (funding risk, interest rate risk, takedown risk) are not directly related to the clause's purpose.

An Adverse Material Changes in Conditions Clause Is Included in Loan