When close to the zone of insolvency, managers have an incentive to gamble. This is known as    Question  options:   a)  an agency cost of debt that covenants cannot attenuate   b)  an agency cost of equity known as fraudulent conveyance    c)  an agency cost of debt that negative covenants can attenuate   d)  an agency cost of debt that positive covenants can attenuate

Substantial doubt exists regarding a client's ability to continue. The client must present its plans to mitigate the effects of the events and conditions. Which item is NOT an acceptable plan? a. Restructure debt to delay due date of Bonds Payable. b. Sell assets used in product production for cash. c. Issue Common Stock at market value. d. Decrease dividend requirements. e. Obtain cash by issuing notes.

to the individual or company that 3. A security is issues it. to the person who buys it, but A) assets; liabilities B) liabilities; assets C) negotiable; non-negotiable D) non-negotiable; negotiable 4. Adverse selection is a problem related to equity and debt, which comes from A) lenders experience a lack of information about the borrower's potential returns and risks from their investment activities. B) the lender's inability to require sufficient collateral to cover 100% of the loss if the borrower defaults. C) lack of incentives for borrowers to seek loans to finance high-risk investments. D) lack of options on the part of the borrower to obtain funds. 5. The secondary market causes more financial instruments to be... A) Solid. B) Vapids. C) Liquids. D) Risky.

Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity.  For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets.         A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.

Adverse selection is a problem associated with equity and debt contracts arising from the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. the borrower's lack of incentive to seek a loan for highly risky investments.       4. none of the choices.

Positive covenants specify actions a borrowing company must take as part of the indenture. These covenants eliminate the possibility that managers of financially distressed firms will pass on positive NPV projects.   Question  options:   a) True   b) False

Which of the following does not relate to credit risks?   Select one: A. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations B. Credit risk also describes the risk that an insurance company will be able to pay a claim. C. It refers to the risk that a lender may not receive the owed principal and interest D. Credit risk describes the risk that a bond issuer may fail to make payment when requested E. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan

Please explain in detail.  .  Unsecured creditors: have rights to be paid amounts owed, but the rights may have to be enforced through the courts face significant risk, and accordingly unsecured credit is very unusual have no rights in the event that the debtor defaults only have the recourse of severing business ties with the defaulting debtor

Hedging refers to a transaction that avoids any financial risks. True or False

Which of the following does not relate to credit risks?  a. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan b. It refers to the risk that a lender may not receive the owed principal and interest c. Credit risk also describes the risk that an insurance company will be able to pay a claim. d. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations e. Credit risk describes the risk that a bond issuer may fail to make payment when requested