Agency theory presents some important managerial considerations. Broadly speaking, governance mechanisms need to assure alignment of incentives between principals and agents. The text provides an example of financial institutions in the situation of profits remaining within the firm while losses are paid by the public as a description of:.A) a board of directors' problem. B) a challenge of information symmetry. C) a moral hazard problem. D) a private information problem. E) an adverse selection problem.

a moral hazard problem

Explanation:

Agency theory is a principle used to explain and resolve the issues in the relationship that exists between business principals and their agents. The relationship is usually the one between the shareholders who act as the principals, and the company executives who act as the agents.

When banks are bailed out through public funds for the excessive risky mortgage obligations or undue risk taking, this lead to increase in moral hazard. The gains of successful risk taking will stay with the private firm and the risks would be shared with the other parties.

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.