From the standpoint of ________, specialization in lending is surprising but makes perfect sense...

1) From the standpoint of ________, specialization in lending is surprising but makes perfect sense when one considers the ________ problem.

A) moral hazard; diversification

B) diversification; moral hazard

C) adverse selection; diversification

D) diversification; adverse selection

2) Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

A) proscription bonds.

B) restrictive covenants.

C) due-on-sale clauses.

D) liens.

3) To reduce moral hazard problems, banks include restrictive covenants in loan contracts. In order for these restrictive covenants to be effective, banks must also

A) monitor and enforce them.

B) be willing to rewrite the contract if the borrower cannot comply with the restrictions.

C) trust the borrower to do the right thing.

D) be prepared to extend the deadline when the borrower needs more time to comply.