The Principal-Agent Problem That Exists for Bank Trading Activities Can

question 33

Multiple Choice

The principal-agent problem that exists for bank trading activities can be reduced through

• A)creation of internal controls that combine trading activities with bookkeeping.
• B)creation of internal controls that separate trading activities from bookkeeping.
• C)elimination of regulation of banking.
• D)elimination of internal controls.

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Definitions:

Assets

Resources owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

Discount Rate

The interest rate charged to commercial banks and other depository institutions on loans received from the central bank's discount window.

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.

Reserve Requirement

The portion of depositors' balances that banks must have on hand as cash or in deposits with the central bank, used as a tool for monetary policy.