Consider a bank insures itself against (i) robberies (ii) rogue traders by entering into insurance contracts. a) Discuss potential moral hazard and adverse selection faced by insurance companies in each case. b) Analyse different approaches which the insurance companies may use to overcome the potential moral hazard and adverse selection problems. Discuss the effectiveness of the approaches in (i) and (ii).

Consider a bank insures itself against (i) robberies (ii) rogue traders by entering into insurance contracts. a) Discuss potential moral hazard and adverse selection faced by insurance companies in each case. b) Analyse different approaches which the insurance companies may use to overcome the potential moral hazard and adverse selection problems. Discuss the effectiveness of the approaches in (i) and (ii)