Regular Bank Examinations and Restrictions on Asset Holdings Help to Indirectly

question 60

Multiple Choice

Regular bank examinations and restrictions on asset holdings help to indirectly reduce the ________ problem because,given fewer opportunities to take on risk,risk-prone entrepreneurs will be discouraged from entering the banking industry.

• A)moral hazard
• B)adverse selection
• C)ex post shirking
• D)post-contractual opportunism

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Definitions:

Return on Stockholders' Equity

A financial ratio that measures the profitability of a corporation in relation to stockholders' equity, indicating how effectively equity is used to generate profits.

Asset Management Ratios

Those ratios—accounts receivable turnover, average collection period, inventory turnover, and asset turnover—which measure how effectively a company uses its assets.

Company's Ability

A broad concept referring to a business's capacity to execute its strategies and achieve its objectives effectively.

Gross Profit Rate

A financial metric that indicates the percentage of revenue that exceeds the cost of goods sold. It helps to assess the efficiency of a company in managing its production costs.