Exam 11: The Economics of Financial Intermediation

A borrower who obtains funds from a lender to purchase additional inventory but uses the funds to finance a trip to Las Vegas for a weekend of gambling at the opening of a new casino is an example of:

The principal-agent problem is quite common in large public corporations due to:

Which of the following is not a role of a financial institution acting as a financial intermediary?

Economies of scale associated with financial intermediaries means:

The publication, Consumer's Reports, is one tool designed to address:

A lender usually knows less about the creditworthiness of a borrower than the borrower does. This is an example of:

A bank advertises a very competitive loan interest rate. Explain what measures the bank can take to address adverse selection.

Automated teller machines provided by financial intermediaries are an example of:

The reduction in transaction costs provided by financial intermediaries benefit:

Financial intermediaries:

Explain why deflation can be so troubling to borrowers and lenders.

Most credit cards charge a relatively high rate of interest, yet many people carry them, including people who would be considered low-risk borrowers. Our discussion of adverse selection said that low-risk borrowers should have been discouraged from these. What gives?

The principal-agent problem is: