Question

In: Finance

Which of the following statements is NOT true? A. Larger corporations have easier access to the...

Which of the following statements is NOT true?

A.

Larger corporations have easier access to the securities market
B.

Debt contracts tend to impose more restrictions on the actions of the borrower than the lender
C.

Collateral is used to secure debt contracts
D.

The financial sector is one of the least regulated industries in the US economy

Solutions

Expert Solution

A.   Larger corporations have easier access to the securities market because it has the capacity to pay the fees required to raise capital in the debt market. It also has the capacity to pay a higher interest to its lenders. So this statement is true.

B.   Debt contracts impose more restrictions on the actions of the borrower than the lender because, debt contracts want to safeguard the interests of the the debtholders. These restrictions are known as covenants and could be anything like the company or the borrower can't issue a senior debt to this debt. These ensure that the company or the borrower acts responsible and is in a position to pay the interest and the principal without any default. So this statement is true.

C.   Collateral is the underlying security which is forfeited if the borrower defaults on any of his obligations. The lender can then sell the collateral to generate the amount he is owed. So the statement is true that the collateral is used to secure a debt.

D.   US financial sector is highly regulated with SEC at the top of all regulations. The Dodd Frank Act of 2010 is also there to regulate the markets a a post 2008 financial crisis. This act has created more stringent rules for the sector and is therefore the topic of current debate in the US politics. So this statement is false.

jeff jeffy answered 1 year ago
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