The Principal-Agent Problem ________

question 90

Multiple Choice

The principal-agent problem ________.

• A) occurs when managers have more incentive to maximize profits than the stockholders-owners do
• B) in financial markets helps to explain why equity is a relatively important source of finance for Canadian business
• C) would not arise if the owners of the firm had complete information about the activities of the managers
• D) explains why direct finance is more important than indirect finance as a source of business finance

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Definitions:

Government Backing

Support or endorsement from a government body, often through policies, subsidies, or direct financial aid.

Gold Standard

A currency where the value is determined by the ability to trade it for a specified amount of gold (i.e., $1 for 1/35 of an ounce) at a government-approved bank.

Currency Value

The worth of a currency in terms of the amount of goods or services that one unit of the currency can purchase.

Government-Approved Bank

A financial institution that has received official authorization from the government to operate within certain regulatory standards.