One financial intermediary in our financial structure that helps to reduce the moral hazard arising from the principal-agent problem is the
A) venture capital firm.
B) money market mutual fund.
C) pawn broker.
D) savings and loan association.

Question

Quizplus · Accepted Answer

Venture capital firms provide financing to start-up companies and take an active role in their management. They often have significant stakes in the companies they fund and work closely with their management teams. This close involvement helps to reduce the moral hazard arising from the principal-agent problem since the venture capitalist has a vested interest in ensuring the success of the company. Additionally, venture capitalists often require performance milestones to be met before releasing additional funding, further aligning the interests of the principal (the investor) and the agent (the company's management team). Money market mutual funds, pawn brokers, and savings and loan associations do not involve the same level of active management and monitoring of invested funds as venture capital firms.

One Financial Intermediary in Our Financial Structure That Helps to Reduce