Imagine that you are in the position of buying loans in the secondary market (th
ID: 1202509 • Letter: I
Question
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans made by banks) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan if: a. the borrower has been late on a number of loan payments b. interest rates in the economy as a whole have risen since the loan was made c. the borrower is a firm that has just declared a high level of profits d. interest rates in the economy as a whole have fallen since the loan was made.
Explanation / Answer
The correct answer is option (C). The borrower is a firm that has just declared a high level of profits encourages to pay more or less willingly for a given loan.