An Example of the Moral Hazard Problem in International Investment

question 215

Multiple Choice

An example of the moral hazard problem in international investment would be that

• A) those seeking funds for the riskiest projects are amongst those most actively seeking the funds.
• B) the recipients of the funds may use the funds for riskier projects than the approved project.
• C) government officials may demand higher than the usual amount of bribes.
• D) those seeking the funds are dishonest.

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Definitions:

Mixed/Whole Numbers

Numbers consisting of both a whole number and a fractional part, usually written with the whole number and fraction separated by a space.

Rate

The ratio of change in one variable relative to another, often used in contexts of finance (interest rates), growth rates, or other measurements of change.

Decimal Places

The places for digits to the right of the decimal point, representing tenths, hundredths, thousandths, and so forth.

Base

In finance, it typically refers to the basic rate or the initial point of reference from which calculations are made or adjusted.