The concept of 'Moral Hazard' in the context of deposit insurance arises because: MCQ with Answer and Explanation

The concept of 'Moral Hazard' in the context of deposit insurance arises because:
A. Depositors monitor banks more intensively
B. Depositors become more careful about bank risk
C. Insurance always reduces risk-taking
D. Banks may take excessive risks knowing that deposits are insured
Answer: Option D
Solution (By JKSSB Mock Tests)
Deposit insurance can create moral hazard by reducing depositors’ incentive to monitor banks and by encouraging banks to take greater risks because the downside is partly borne by the insurer.

Discuss this Question (0)

No comments yet. Be the first to start the discussion!

Practice More Economy Set 1 Questions

Question #1
If the reserve ratio is 10%, the simple deposit/money multiplier is:
A. 5
B. 10
C. 100
D. 20

Correct Answer: Option B


Explanation:
Money multiplier = 1/reserve ratio = 1/0.10 = 10.

This question belongs to: Economy GK Economy Set 1
Question #2
The 'GST Appellate Tribunal' is also known as:
A. Goods and Services Tax Appellate Tribunal
B. Competition Commission of India
C. GST Council
D. Central Board of Indirect Taxes and Customs

Correct Answer: Option A


Explanation:
GST Appellate Tribunal hears appeals under GST.

This question belongs to: Economy GK Economy Set 1
Question #3
The 'Financial Literacy' in India is promoted by RBI through:
A. stock exchanges
B. tax collection
C. import duties
D. financial education initiatives and awareness campaigns

Correct Answer: Option D


Explanation:
RBI promotes financial literacy through various campaigns and initiatives.

This question belongs to: Economy GK Economy Set 1