Explain how banks’ risk-taking behaviour prior to the 2008 financial crisis can be explained by the theory of Moral Hazard.

Description

The intended learning outcomes of the assignment are:

Completion of this assignment will allow you to demonstrate having met the following module learning outcome:

Ø LO2: Appraise theory and its application in a variety of international business and

economic contexts.

Ø LO3: Evaluate problem-solving strategies for businesses and policymakers for

effective contracting and transacting using relevant evidence and case studies.

Question-

Explain how banks’ risk-taking behaviour prior to the 2008 financial crisis can be explained by the theory of Moral Hazard.

In particular, explain and refer to theories that link financial leverage to incentives for excessive risk taking.

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