Moody's, Fitch's, and Standard and Poors help reduce __________ in financial markets. a) the principal agent...

Moody's, Fitch's, and Standard and Poors help reduce __________ in financial markets.

a) the principal agent problem

b) prices

c) the lemon's problem

d) moral hazard

Expert Solution

The right answer is option A, because poor credit ratings will prevent the firms in financial markets to involve in risky activities because poor ratings will affect the investment in those firms which will effect the profitability of those firms. Principal agent problem implies that the agent will involve in risky activities because agent knows that they do not have to bear the cost of those risky activities as the principal will bear those cost of those risky activities.

Rahul Sunny answered 2 years ago

1 The depth and liquidity of the global financial markets help companies reduce their capital costs,...

1 The depth and liquidity of the global financial markets help companies reduce their capital costs, improve access to financing, invest more, and grow. True or False? 2 2018 Global Equity Market Capitalization $33.6 trillion True or False? 3 U.S. merger and acquisition announced deals totaled $1.7 trillion in 2018 True or False?

Assume that a company's Financial Statements received a negative rating from Standard & Poors. Which ratios...

Assume that a company's Financial Statements received a negative rating from Standard & Poors. Which ratios most likely influenced the rating decision? Compare and contrast two financial ratios that support the S&P decision.

Question 1: Describe a principal-agent relationship. a. a principal makes a decision that affects an agent...

Question 1: Describe a principal-agent relationship. a. a principal makes a decision that affects an agent b. an agent makes a decision that affects a principal c. an employee acting on behalf of its employer can be viewed as an agent d. a lawyer acting on behalf of its client can be viewed as a principal e. A and B f. A and C g. A and D h. B and C i. B and D j. C and D...

Determine which is the principal and which is the agent in the following relationships and then briefly discuss the principal-agent issues for each.

The Principal-Agent Problem: Determine which is the principal and which is the agent in the following relationships and then briefly discuss the principal-agent issues for each.a. A firm that produces good for export and the export management company that helps market its goods overseasb. An employee-pension management firm and the company using its servicesc. The management of a firm and its stockholders

Opportunistic and overoptimistic behavior transforms the principal-agent relationship between investor and entrepreneur into a principal-agent problem.’...

Opportunistic and overoptimistic behavior transforms the principal-agent relationship between investor and entrepreneur into a principal-agent problem.’ Explain why the above statement is true and outline the mechanisms which are available to both parties to reduce this problem.

Agency is a contractual relationship, involving an agent and a principal, in which the agent is...

Agency is a contractual relationship, involving an agent and a principal, in which the agent is given the authority to represent the principal in dealings with third parties. The most common example is an employer-employee relationship wherein an agent (employee) is given the power by a principal (employer) to act on his or her behalf. An agent may be an employee or an independent contractor. A principal is a person who employs an agent to act on his or her...

Explain the principal agent theory in negotiation.

In a principal-agent relationship, the parties have agreed that the agent will act... on behalf of...

In a principal-agent relationship, the parties have agreed that the agent will act... on behalf of a customer. in the agent's best interest. as a fiduciary for the government. as a fiduciary of the principal subject to the principal's control and consent.

What is potential for principal-agent problems for Disney?

Discuss briefly the principal agent issues with examples.

Question