Managerial Economics 13th Edition by James McGuigan,Charles Moyer,Frederick Harris

Exercise 19

How might the lender in Figure use knowledge of the type of asset booked by the borrower on its balance sheet to offset the liability for the loan extension Commercial loan covenants often include a restriction on precisely this balance-sheet decision making-for example, restricting the booking of offsetting foreign assets.
FIGURE The Problem of Moral Hazard in Line-of-Credit Lending: A Game-Theoretic Model of Workouts