Describe the moral hazard problem of deposit insurance.
What will be an ideal response?
When a bank knows that its depositors do not care what the bank does because their deposits are insured by the government, the bank might make riskier investments. If these risky investments fail, the government will pick up the tab. This is the moral hazard problem faced by the government. The government has established a set of risk-based deposit insurance premiums in 1993, to deal with this moral hazard problem. In this system, riskier banks must pay larger amounts into the deposit insurance fund than safer banks.
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A cash flow statement is one of the basic financial statements that is required under IFRS GAAP I. No Yes II. No No III. Yes No IV. Yes Yes ?
A) I B) II C) III D) IV
Answer the following statements true (T) or false (F)
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