A Sharp Stock Market Decline Increases Moral Hazard Incentives

question 35

Multiple Choice

A sharp stock market decline increases moral hazard incentives

• A)since borrowing firms have less to lose if their investments fail.
• B)because it is immoral to profit from someone's loss.
• C)since lenders are more willing to make loans.
• D)reducing uncertainty in the economy and increasing market efficiency.

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Definitions:

Venture Capital Firm

A company that invests in startups and early-stage companies with high growth potential in exchange for equity.

Entrepreneur

An individual who organizes, operates, and assumes the risk for a venture, innovating and transforming ideas into economically viable entities.

Tax Exposure

The degree to which an individual or organization is subject to taxes or the risk of tax-related liabilities.

Operating Working Capital

Operating Working Capital is a measurement of a company's operating liquidity, calculated as current assets minus current liabilities, indicating the short-term financial health and efficiency of operations.