A Key Obstacle Facing Regulators Who Want to Prevent Financial

question 47

Multiple Choice

A key obstacle facing regulators who want to prevent financial institutions from taking excessive risks is the difficulty in:

• A) finding diversified pools of assets to reduce risk.
• B) drawing the line between excessive and appropriate risk taking.
• C) eliminating idiosyncratic risk through diversification.
• D) distinguishing between equity and debt financing.

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Definitions:

Conditioned Response

A learned reaction to a previously neutral stimulus that has been repeatedly paired with an unconditioned stimulus causing an automatic response.

Taste Aversions

A learned response to eating spoiled or toxic food, resulting in an aversion to the taste of foods associated with illness or poor experiences.

Insight Learning

A cognitive process in which a problem is suddenly understood or solved through an "aha" moment without trial-and-error behavior.

Vicarious Learning

A process of learning that occurs by observing the behaviors of others, their consequences, and deciding whether to imitate that behavior.