The trading losses that some banks incurred could be thought to be from trading risk, but in many cases the real cause of the losses could be attributed to moral hazard. Why was this the case?
What will be an ideal response?
As the chapter points out, in the case of trading, often times the trader (the bank employee) is in a situation where, if the trades turn out profitable, the trader reaps a large portion of the gains; but if the trade generates losses, the bank loses. This is a classic moral hazard problem where the trader has a strong incentive to take significant amounts of risk. This was certainly the case with Nick Leeson and Barings Bank.
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Total expenditure equals price times quantity.
Answer the following statement true (T) or false (F)
Which type of business has the least government rules and regulations affecting it?
A) partnership B) corporation C) sole proprietorship D) They all have the same set of rules and regulations affecting them.
Which of the following is not a step involved in cost-benefit analysis?
a. Conversion of the costs and benefits to dollar terms. b. Enumeration of the costs and benefits. c. Enumeration of the special interests. d. Enumeration of the options.
Monitoring the performance of the people managing the firm is easiest in the case of
A. proprietorships. B. partnerships. C. S corporations. D. corporations.