Bank Examinations by the FDIC Help Reduce the ________ Problem

question 27

Multiple Choice

Bank examinations by the FDIC help reduce the ________ problem, by preventing bank managers from allocating funds already obtained from depositors to non-creditworthy loans.

• A) moral hazard
• B) principled hazard
• C) adverse selection
• D) contrary selection

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Definitions:

Expected Return

The anticipated profit or loss from an investment, considering all possible outcomes and their probabilities.

Systematic Risks

Risks that impact the entire market or economy, often unavoidable by diversification.

Diversified Portfolio

An investment strategy that spreads investments across various assets to reduce risk.

Standard Deviation

A statistical measure of the dispersion or variability within a data set, often used to quantify the risk associated with a variable’s average value.