One way for banks to reduce the principal-agent problems associated with trading activities is to
A)set limits on the total amount of a traders' transactions.
B)make sure that the person conducting the trades is also the person responsible for recording the transactions.
C)encourage traders to take on more risk if the potential rewards are higher.
D)reduce the regulations on the traders so that they have more flexibility in conducting trades.

Question

Quizplus · Accepted Answer

By setting limits on the total amount of a trader's transactions, the bank can decrease the risk of the trader taking excessive risks or engaging in unauthorized trading activities, which can lead to adverse consequences for the bank. This helps reduce the principal-agent problems associated with trading activities. Other options such as encouraging traders to take on more risk or reducing regulations on traders can lead to increased risk-taking behaviors and potentially worsen the principal-agent problem. Making sure that the person conducting and recording the trades is the same person can also help reduce the risk of fraudulent activity, but it may not directly address the principal-agent problem associated with excessive risk-taking.

One Way for Banks to Reduce the Principal-Agent Problems Associated