Exam 8: An Economic Analysis of Financial Structure

Although restrictive covenants can potentially reduce moral hazard,a problem with restrictive covenants is that

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

As information technology improves,the lending role of financial institutions such as banks should

Commercial and farm mortgages,in which property is pledged as collateral,account for

The analysis of how asymmetric information problems affect economic behavior is called ________ theory.

One way of describing the solution that high net worth provides to the moral hazard problem is to say that it

The concept of adverse selection helps to explain

Since they require less monitoring of firms,________ contracts are used more frequently than ________ contracts to raise capital.

Solutions to the moral hazard problem include

Because information is scarce

Because of the adverse selection problem

A key finding of the economic analysis of financial structure is that

Debt contracts

The high growth rate in China in the last twenty years has similarities to the high growth rate of ________ during the 1950s and 1960s.

Nonfinancial businesses in Germany,Japan,and Canada raise most of their funds

Because of the weak systems of property rights in many developing and transition economies,the financial system is unable to use collateral effectively worsening the ________ problem.

That only large,well-established corporations have access to securities markets

External financing by ________ should be more important in developing countries than in industrialized countries because information about private firms is more difficult to collect in developing countries.

Collateralized debt is also know as

Why does the free-rider problem occur in the debt market?