The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses.

(A) True

(B) False

Question

Donavan Anderson

Business

15 May, 08:26

The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses.

(A) True

(B) False

+3

Answers (1)

Know the Answer?

Sonny Lam · Answer 1

Answer: TRUE

Explanation: Moral hazard refers to the situation when an individual starts taking avoidable risk unnecessarily when he or she is aware of the fact that any potential loss will be bore by the third party and not him.

Thus, if the manager is taking more and more risk knowing that they are insured is a clear example of moral hazard. Hence, the given statement is true.

The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses.(A) True(B) False

The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses.

(A) True

(B) False