The principal-agent problem that exists for bank trading activities can be reduced through
A)creation of internal controls that combine trading activities with bookkeeping.
B)creation of internal controls that separate trading activities from bookkeeping.
C)elimination of regulation of banking.
D)elimination of internal controls.

Question

Quizplus · Accepted Answer

The principal-agent problem arises when the interests of the principal (shareholders) are not aligned with the interests of the agent (traders) who make decisions on behalf of the principal. Separating trading activities from bookkeeping allows for independent monitoring and oversight, reducing the risk of conflicts of interest and increasing accountability. Internal controls are still necessary to ensure compliance with regulations and to prevent misconduct. Elimination of regulation or internal controls would only exacerbate the problem.

The Principal-Agent Problem That Exists for Bank Trading Activities Can