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One concern that banks have when they lend to companies is that their interests are different from those of the stockholders running these companies

Finance Jan 17, 2021

One concern that banks have when they lend to companies is that their interests are different from those of the stockholders running these companies. If you move to a system where lenders' interests are unprotected, which of the following would you expect to observe on lending and interest rates? Select one: a. Less money will be lent at lower interest rates O b. More money will be lent at higher interest rates O c. No effect on either borrowing on interest rates O d. More money will be lent at lower interest rates e. Less money will be lent at higher interest rates

Expert Solution

If in system, lenders' interest is unprotected, then bank should not willing to lend more in this system or must charge a higher rate.

Hence, less money will be lent at higher interest rates.

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