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Financial institutions moral hazards

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1. What are some of the ways that moral hazard and adverse selection are limited for insurance products?
2. What is the role of an investment bank, along with the products and services offered?
3. Summarize the regulatory framework found within the securities industry.
4. How has the banking system evolved into a "dual banking system", and what does this mean?

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Solution Summary

The expert determines what are some of the ways that moral hazards and adverse selections are limited for insurance products. The role of an investment bank, along with the products and services offered are determined.

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http://www.economicshelp.org/blog/105/economics/what-is-moral-hazard/
http://www.economicshelp.org/blog/glossary/adverse-selection/
https://www.ntia.doc.gov/legacy/ntiahome/privacy/mail/disk/SIA.html
http://www.investopedia.com/terms/d/dual-banking-system.asp
http://www.investopedia.com/articles/investing/111114/whats-role-investment-bank.asp

1. What are some of the ways that moral hazard and adverse selection are limited for insurance products?

Some of the ways that moral hazard can be limited for insurance products include building in incentives wherein insurance companies can provide incentives that will inspire the customer to want to insure their merchandise. In addition, the insurance company has the autonomy to make the process of getting money more difficult while also penalizing bad behavior and ensuring that those responsible for engaging reckless behavior are penalized.

In reference to adverse selection, identifying different groups that could be charged higher premiums because of higher risks associated with these groups is an acceptable approach toward limited the impact on insurance companies. Quintessentially, ensuring that higher health insurance premiums for people who smoke or are obese is only practical ...

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