Understanding a company's relationships with financial institutions and bondholders is important because:
a. it can indicate the extent to which the company is leveraged.
b. it can reveal whether significant short selling of the company's stock has occurred.
c. it can uncover the fraudulent transactions from special purpose entities.
d. it may help in raising additional funds from the financial institutions.
a
FEEDBACK: a. Correct. A very leveraged company may have more pressure to commit fraud because of debt restrictions and covenants.
b. Incorrect. This has to do with a company's relationship with investors..
c. Incorrect. SPEs are not usually involved in relationships with financial institutions and bondholders.
d. Incorrect.
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Answer the following statement true (T) or false (F)