Moral Hazard Can Contribute to High Bank Leverage in All

question 6

Multiple Choice

Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT

• A) having high capital requirements.
• B) bank managers are compensated in part on providing shareholders with high returns on equity.
• C) high bank leverage provides shareholders with a potential for a higher return on equity.
• D) federal deposit insurance has reduced the incentive of depositors to monitor the behavior of bank managers.

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Definitions:

Budgeting

Budgeting involves planning income and expenditure for a specific period, helping organizations allocate resources efficiently.

Relevant Range

The range of activity within which the assumptions about fixed and variable costs are valid.

Unit Fixed Costs

Unit fixed costs refer to the costs that do not vary with the level of output or activity within a certain range of production or sales.

Total Variable Cost

The sum of all costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.