Which of the Following Must a Principal Do to Reduce

question 31

Multiple Choice

Which of the following must a principal do to reduce agency costs?

• A)Encourage the agent to maximize his or her benefits
• B)Provide complete autonomy to the agent
• C)Discourage the agent from pursuing projects with high potential payoffs
• D)Increase information asymmetry and goal congruence
• E)Align the agent's interests with the principal's interests

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Definitions:

Commercial Bank

A financial institution that provides various services, including accepting deposits, lending money, and offering investment products to individuals and businesses.

Savings and Loan

A type of financial institution that specializes in accepting savings deposits and making mortgage and other loans.

Depository Institutions

Depository institutions are financial organizations, such as banks and credit unions, that accept deposits from individuals and provide loans.

Reserves

Funds that banks use to satisfy the cash demands of their customers and the reserve requirements of the Fed; reserves consist of cash held by banks plus deposits at the Fed.