Answer:
The correct answer is B. The use of collateral makes it more costly for borrowers to take advantage of their asymmetric information.
Explanation:
In finance, a collateral or guarantee is a transferable asset or a surety, or even a promise of guarantee, used to cover the credit risk during financial transactions in the event that the borrower cannot meet his payment obligations.
A secured loan means a loan in which the borrower commits certain assets as a guarantee of credit, this the latter then becoming a partially secured debt for the creditor who made this loan.
The guarantee may consist of cash (pledge of cash account in retail bank, cash-collateral in investment bank) or securities.
Another form consists of a simple commitment: commitment by signature of a bank towards its client, promise of collateral or mortgage, letter of intent.
