Exam 8: An Economic Analysis of Financial Structure

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

The solution to the adverse selection problem in financial markets is to ________.

How do restrictive covenants reduce moral hazard in debt contracts?

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

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

One reason China has been able to grow so rapidly even though its financial development is still in its early stages is ________.

Which of the following is not a benefit to an individual purchasing a mutual fund?

Government regulations require publicly traded firms to provide information, reducing ________.

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

Professional athletes often have contract clauses prohibiting risky activities such as skiing and motorcycle riding. These clauses are ________.

Nobel prize winner George Akerlof is associated with the "________ problem."

The problem of adverse selection helps to explain ________.

Although debt contracts require less monitoring than equity contracts, debt contracts are still subject to ________ since borrowers have an incentive to take on more risk than the lender would like.

Explain the "lemons problem" as it applies to the used-car market. Why does this problem exist? How does this market resolve this problem?

Of the sources of external funds for nonfinancial businesses in Canada, corporate bonds and commercial paper account for approximately ________ of the total.

Government regulations require publicly traded firms to provide information, reducing ________.

Liquidity service offered by financial intermediary make it ________.

Managers (________)may act in their own interest rather than in the interest of the stockholder-owners (________)because the managers have less incentive to maximize profits than the stockholder-owners do.

Solutions to the moral hazard problem include ________.

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________.