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A moral hazard is risky behavior that is demonstrated by one side of a financial transaction because of information asymmetry that is present (Rowell and Connelly 1051). It needs to be said that such actions are considered to be legal, but they can be viewed as extremely dangerous and unnecessary from an economic perspective. One of the issues that are currently present is that this aspect is often not taken into consideration by most companies.
International Monetary Fund (IMF) financing can be viewed as one of the best examples that can be used to explain the reasoning behind such an attitude. It should be said that financial institutions that are supported by the organization demonstrate behavior that is reckless because they do not take full responsibility for their actions and do not assess the risks that are associated with some of the operations such as excessive landing.
Such actions are necessary in some cases, but the level of moral hazard should be taken into consideration. One of the most significant issues is that should be noted is that it is nearly impossible to monitor the actions of the other party most of the time, and it may lead to severe consequences that should not be disregarded (Stevens and Thevaranjan 125). This aspect cannot be overlooked because it may result in problems in financial markets. Some changes to the way the organization functions may be necessary to address some of the issues that are currently present.
In conclusion, it is paramount for every institution to consider the risks that are associated with the moral hazard, and to take necessary measures to prevent any complications that may occur because it may hurt the global economy in some cases.
Rowell, David, and Luke B. Connelly. “A History of the Term “Moral Hazard”.” Journal of Risk and Insurance 79.4 (2012). Print.
Stevens, Douglas E., and Alex Thevaranjan. “A Moral Solution to the Moral Hazard Problem.” Accounting, Organizations and Society 35.1 (2010): 125-139. Print.