Discuss Two Ways in Which a Shareholder Can Mitigate the Problem

question 1

Essay

Discuss two ways in which a shareholder can mitigate the problem of moral hazard when investing in a company.

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Definitions:

Government Bonds

Debt securities issued by a government to support government spending, considered low-risk investments since they are backed by the taxing power of the issuing government.

Corporate Bonds

Debt securities issued by corporations to finance their operations, which pay interest to investors until maturity.

Available-For-Sale

A classification of securities which are not actively traded by the company, with changes in value reported in other comprehensive income.

Significant Influence

The power to participate in the financial and operating policy decisions of another entity, but not control those policies.