Consider the following statements:Statement-I: Syndicated lending spreads the risk of borrower default across multiple lenders. Statement-II: The syndicated loan can be 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?

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The correct answer is Statement-I is correct, but Statement-II is incorrect. Statement-I: Correct Syndicated lending involves a group of lenders (the syndicate) providing funds to a single borrower. Because no single bank holds the entire loan on its books, the risk of default is diversified across all participating institutions. This allows banks to participate in massive deals (like infrastructure projects or major acquisitions) without exceeding their individual risk limits.Statement-II: Incorrect A syndicated loan is highly flexible regarding its structure. While it can certainly be a fixed amount (Term Loan), it frequently functions as a revolving credit line.  In fact, many large corporations use syndicated facilities specifically as "backstop" credit lines to ensure liquidity or to support commercial paper programs. Comparison of Loan Types in Syndication Feature Term Loan (Lump Sum)Revolving Credit Line Funding Disbursed in full at the start. Drawn, repaid, and redrawn as needed. Repayment Scheduled installments (amortization).Flexible, usually based on cash flow. Purpose Specific projects or acquisitions. Working capital and liquidity management.

Answer

Both Statement-I and Statement-II are correct and Statement-I Statement-II explains

Answer

Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

Answer

Statement-I is incorrect, but Statement-II is correct

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UPSC CSE 2024 Prelims

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