Question

UPSC Prelims 2024 Question:

Consider the following statements

Statement-I: Syndicated lending spreads the risk of borrower default across multiple lenders

Statement-II: The Syndicated loan can be a fixed amount/lump sum of funds, but cannot be a credit line.

Which one of the following is correct in respect of the above statements?

1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
2. Both Statement-I and Statement-II are correct and Statement-II is not the corre ct explanation for Statement-I
3. Statement-I is correct but Statement-II is incorrect
4. Statement-I is incorrect but Statement-II is correct

Answer (Detailed Solution Below)

Option 3: Statement-I is correct but Statement-II is incorrect

Detailed Solution

Explanation:

Syndicating allows lenders to spread risk and take part in financial opportunities that may be too large for their individual capital base. Lenders are referred to as a syndicate, which works together to provide funds for a single borrower. Syndicated lending spreads the risk of borrower default across multiple lenders. So, statement 1 is correct.
The borrower can be a corporation, a large project, or a sovereign government. The loan can involve a fixed amount of funds, a credit line, or a combination of the two.

So, statement 2 is not correct.

Therefore, option (3) is the correct answer.

Subject: Economics| Money and Banking

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