Lenders recognize that by having an interest in collateral they can reduce losses if the borrowing firm defaults,
A. and the presence of collateral reduces the risk of default.
B. but the presence of collateral has no impact on the risk of default.
C. therefore lenders prefer to lend to customers from whom they are able to require collateral.
D. therefore lenders will impose a higher interest rate on unsecured short-term borrowing.
Answer:B
Lenders recognize that by having an interest in collateral they can reduce losses if the borrowing firm defaults,
A. and the presence of collateral reduces the risk of default. B. but the presence of collateral has no impact on the risk of default. C. therefore lenders prefer to lend to customers from whom they are able to require collateral. D. therefore lenders will impose a higher interest rate on unsecured short-term borrowing.