A collateral shock is:
A) one shock causing another shock.
B) a requirement to pledge an asset to secure a loan.
C) a reduction in the value of collateral.
D) an increase in the value of collateral.

Question

Quizplus · Accepted Answer

A collateral shock refers to a reduction in the value of collateral that borrowers have pledged to secure loans. This can occur due to various reasons, such as a decline in the value of the underlying asset, increased competition in the market, or changes in regulations that affect the value of the collateral.

A Collateral Shock Is