Question

During the term of a loan, the lender relinquishes his right to:

a. dividends payable on the loaned securities.
b. price movements in the loaned securities.
c. vote loaned securities by proxy.
d. stock dividends paid on loaned securities.

Answer 1

The lender relinquishes the right to vote loaned securities by proxy during the term of a loan, while still maintaining the right to scheduled payments on the loan.

Step-by-step explanation:

During the term of a loan, the lender relinquishes the right to vote loaned securities by proxy. This is because while lenders provide the financial capital needed, they do not maintain the same rights as shareholders, such as voting rights or the right to receive dividends directly. Lenders do, however, maintain the right to receive payments as specified in the loan agreement, and they expect the loan to be repaid as agreed, on time and in full, regardless of the borrower's financial situation. In contrast, stock dividends and price movements benefit the actual owners of the securities. This distinction is important in managing financial risk and maintaining control of a firm when deciding between issuing stock and borrowing funds.