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Question
Why do lenders often require collateral before lending loan? Choose the most suitable option from the following.
Options
To lower interest rates for borrowers.
To establish personal relations.
To increase their profit margins.
To mitigate the risk of loan default.
MCQ
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Solution
To mitigate the risk of loan default.
Explanation:
Collateral provides security against loan default, reducing the lender's risk.
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