Question 1

The "lemons problem" exists because of

Accepted Answer

A) transactions costs. 
B) economies of scale. 
C) rational expectations. 
D) asymmetric information. 
A) transactions costs. 
B) economies of scale. 
C) rational expectations. 
D) asymmetric information.

Question 2

A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a

Accepted Answer

A) collateral-insurance clause. 
B) prescription covenant. 
C) restrictive covenant. 
D) proscription covenant. 
A) collateral-insurance clause. 
B) prescription covenant. 
C) restrictive covenant. 
D) proscription covenant.

Question 3

If you default on your auto loan,your car will be repossessed because it has been pledged as ________ for the loan.

Accepted Answer

A) interest 
B) collateral 
C) dividend 
D) commodity 
A) interest 
B) collateral 
C) dividend 
D) commodity

Question 4

The free-rider problem occurs because

Accepted Answer

A) people who pay for information use it freely. 
B) people who do not pay for information use it. 
C) information can never be sold at any price. 
D) it is never profitable to produce information. 
A) people who pay for information use it freely. 
B) people who do not pay for information use it. 
C) information can never be sold at any price. 
D) it is never profitable to produce information.

Question 5

That most used cars are sold by intermediaries (i.e.,used car dealers)provides evidence that these intermediaries

Accepted Answer

A) have been afforded special government treatment,since used car dealers do not provide information that is valued by consumers of used cars. 
B) are able to prevent potential competitors from free-riding off the information that they provide. 
C) have failed to solve adverse selection problems in this market because "lemons" continue to be traded. 
D) have solved the moral hazard problem by providing valuable information to their customers. 
A) have been afforded special government treatment,since used car dealers do not provide information that is valued by consumers of used cars. 
B) are able to prevent potential competitors from free-riding off the information that they provide. 
C) have failed to solve adverse selection problems in this market because "lemons" continue to be traded. 
D) have solved the moral hazard problem by providing valuable information to their customers.

Question 6

How does collateral help to reduce the adverse selection problem in credit market?

Accepted Answer

Collateral is property that is promised

Question 7

One possible reason for slower growth in developing and transition countries is

Accepted Answer

A) capital may not be directed to its most productive use. 
B) strict accounting standards are too stringent for the banks to meet. 
C) the weak link between government and financial intermediaries. 
D) the lack of adverse selection and moral hazard problems. 
A) capital may not be directed to its most productive use. 
B) strict accounting standards are too stringent for the banks to meet. 
C) the weak link between government and financial intermediaries. 
D) the lack of adverse selection and moral hazard problems.

Question 8

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?

Accepted Answer

A) Issuing marketable securities is the primary way that they finance their activities. 
B) Bonds are the least important source of external funds to finance their activities. 
C) Stocks are a relatively unimportant source of finance for their activities. 
D) Selling bonds directly to the American household is a major source of funding for American businesses. 
A) Issuing marketable securities is the primary way that they finance their activities. 
B) Bonds are the least important source of external funds to finance their activities. 
C) Stocks are a relatively unimportant source of finance for their activities. 
D) Selling bonds directly to the American household is a major source of funding for American businesses.

Question 9

A lesson of the Enron collapse is that government regulation

Accepted Answer

A) always fails. 
B) can reduce but not eliminate asymmetric information. 
C) increases the problem of asymmetric information. 
D) should be reduced. 
A) always fails. 
B) can reduce but not eliminate asymmetric information. 
C) increases the problem of asymmetric information. 
D) should be reduced.

Question 10

As a source of funds for nonfinancial businesses,stocks are relatively more important in

Accepted Answer

A) the United States. 
B) Germany. 
C) Japan. 
D) Canada. 
A) the United States. 
B) Germany. 
C) Japan. 
D) Canada.

Question 11

Financial intermediaries develop ________ in things such as computer technology which allows them to lower transactions costs.

Accepted Answer

A) expertise 
B) diversification 
C) regulations 
D) equity 
A) expertise 
B) diversification 
C) regulations 
D) equity

Question 12

With regard to external sources of financing for nonfinancial businesses in the United States,which of the following are accurate statements?

Accepted Answer

A) Marketable securities account for a larger share of external business financing in the United States than in Germany and Japan. 
B) Since 1970,most of the newly issued corporate bonds and commercial paper have been sold directly to American households. 
C) Direct finance accounts for more than 50 percent of the external financing of American businesses. 
D) Smaller businesses almost always raise funds by issuing marketable securities. 
A) Marketable securities account for a larger share of external business financing in the United States than in Germany and Japan. 
B) Since 1970,most of the newly issued corporate bonds and commercial paper have been sold directly to American households. 
C) Direct finance accounts for more than 50 percent of the external financing of American businesses. 
D) Smaller businesses almost always raise funds by issuing marketable securities.

Question 13

The name economists give the process by which stockholders gather information by frequent monitoring of the firm's activities is

Accepted Answer

A) costly state verification. 
B) the free-rider problem. 
C) costly avoidance. 
D) debt intermediation. 
A) costly state verification. 
B) the free-rider problem. 
C) costly avoidance. 
D) debt intermediation.

Question 14

Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.

Accepted Answer

A) households 
B) insurance companies 
C) pension funds 
D) financial intermediaries 
A) households 
B) insurance companies 
C) pension funds 
D) financial intermediaries

Question 15

The principal-agent problem would not occur if ________ of a firm had complete information about actions of the ________.

Accepted Answer

A) owners;customers 
B) owners;managers 
C) managers;customers 
D) managers;owners 
A) owners;customers 
B) owners;managers 
C) managers;customers 
D) managers;owners

Question 16

Of the four sources of external funding for nonfinancial businesses,the least often used in the U.S.is

Accepted Answer

A) bank loans. 
B) nonbank loans. 
C) bonds. 
D) stock. 
A) bank loans. 
B) nonbank loans. 
C) bonds. 
D) stock.

Question 17

In developing countries,it can be expensive and time-consuming for the poor to legalize their property ownership.Without legal title,the property cannot be used as ________ to borrow funds.

Accepted Answer

A) collateral 
B) points 
C) interest 
D) restrictive covenants 
A) collateral 
B) points 
C) interest 
D) restrictive covenants

Question 18

Of the sources of external funds for nonfinancial businesses in the United States,loans from banks and other financial intermediaries account for approximately ________ of the total.

Accepted Answer

A) 6% 
B) 40% 
C) 56% 
D) 60% 
A) 6% 
B) 40% 
C) 56% 
D) 60%

Question 19

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?

Accepted Answer

A) Stocks are a far more important source of finance than are bonds. 
B) Stocks and bonds,combined,supply less than one-half of the external funds. 
C) Financial intermediaries are the least important source of external funds for businesses. 
D) Since 1970,more than half of the new issues of stock have been sold to American households. 
A) Stocks are a far more important source of finance than are bonds. 
B) Stocks and bonds,combined,supply less than one-half of the external funds. 
C) Financial intermediaries are the least important source of external funds for businesses. 
D) Since 1970,more than half of the new issues of stock have been sold to American households.

Question 20

How does a mutual fund lower transactions costs through economies of scale?

Accepted Answer

The mutual fund takes the funds of the i

Exam 8: An Economic Analysis of Financial Structure

The "lemons problem" exists because of

A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a

If you default on your auto loan,your car will be repossessed because it has been pledged as ________ for the loan.

The free-rider problem occurs because

That most used cars are sold by intermediaries (i.e.,used car dealers)provides evidence that these intermediaries

How does collateral help to reduce the adverse selection problem in credit market?

One possible reason for slower growth in developing and transition countries is

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?

A lesson of the Enron collapse is that government regulation

As a source of funds for nonfinancial businesses,stocks are relatively more important in

Financial intermediaries develop ________ in things such as computer technology which allows them to lower transactions costs.

With regard to external sources of financing for nonfinancial businesses in the United States,which of the following are accurate statements?

The name economists give the process by which stockholders gather information by frequent monitoring of the firm's activities is

Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.

The principal-agent problem would not occur if ________ of a firm had complete information about actions of the ________.

Of the four sources of external funding for nonfinancial businesses,the least often used in the U.S.is

In developing countries,it can be expensive and time-consuming for the poor to legalize their property ownership.Without legal title,the property cannot be used as ________ to borrow funds.

Of the sources of external funds for nonfinancial businesses in the United States,loans from banks and other financial intermediaries account for approximately ________ of the total.

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are TRUE?

How does a mutual fund lower transactions costs through economies of scale?

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

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The principal-agent problem would not occur if of a firm had complete information about actions of the .