Question #13
Reading: Reading 7 Economics of Regulation
PDF File: Reading 7 Economics of Regulation.pdf
Page: 6
Status: Unattempted
Question
Which of the following statements is most accurate regarding the regulation of security markets?
Answer Choices:
A. Regulations requiring the insurance of retail deposits at large banks may increase risk-taking incentives for the bank
B. Most securities markets require investors to transact through intermediaries to reduce potential agency problems
C. Historically, regulations have focused on large investment schemes such as private equity funds, rather than on retail investors
Explanation
Regulation has historically focused on the protection of retail investors. When investors
work through intermediaries it introduces rather than reduces the agency problem. When
bank deposits are insured, banks may adopt more aggressive risk-taking policies.