Requiring Higher Capital Ratios Often Is Proposed as Method to Reduce

question 44

True/False

Requiring higher capital ratios often is proposed as method to reduce the incentive to take excessive risk because the moral-hazard risk-taking incentives are thought to decrease as the amount of net worth increases.

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Definitions:

Overhead Cost

All ongoing business expenses not directly attributed to creating a product or service, including rent, utilities, and salaries of non-production staff.

Activity Rates

Are used in activity-based costing to allocate costs to products or services based on the activities required for their production or delivery.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, improving accuracy in product costing.

Overhead Cost

Expenses related to the day-to-day running of a business that are not directly linked to a specific product or service but are necessary for the business to operate.