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Questions and Answers
What is the purpose of interest in a loan?
What is the purpose of interest in a loan?
- To increase the total amount of money borrowed
- To provide an incentive for the lender to engage in the loan (correct)
- To discourage borrowers from taking out loans
- To cover the administrative costs of the loan
What is a typical source of funding for institutions other than financial institutions?
What is a typical source of funding for institutions other than financial institutions?
- Providing mortgage loans
- Offering personal loans
- Issuing debt contracts such as bonds (correct)
- Issuing credit cards
What does a secured loan involve?
What does a secured loan involve?
- The loan is not subject to interest payments
- The borrower pledges an asset as collateral (correct)
- The borrower does not incur any debt
- The lender provides the loan without any collateral
What is one of the main activities of financial institutions like banks?
What is one of the main activities of financial institutions like banks?
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What does the document evidencing the debt in a loan normally specify?
What does the document evidencing the debt in a loan normally specify?
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