Exam 7: Why Do Financial Institutions Exist?

China is in an early state of development,with a per capita income that is still less than ________,one-fifth of the per capita income in the United States.

The Sarbanes-Oxley Act of 2002 dealt with conflicts of interest in

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

Because of the adverse selection problem,

Conflicts of interest pose a problem because they

How does the U.S.differ from other countries with respect to the source of funding for nonfinancial business?

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

Investment banks serve two client groups,

Moral hazard is a problem associated with debt and equity contracts arising from

Liquidity services are services that

Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.

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

The Sarbanes-Oxley Act of 2002 established a Public Company Accounting Oversight Board (PCAOB),overseen by the SEC,to supervise accounting firms and ensure that audits are independent and controlled for quality.

The Global Legal Settlement of 2002 dealt with conflicts of interest in

What issues do critics cite when discussing why Sarbanes-Oxley has led to a decline in U.S.capital markets?

What factors usually cause an increase in moral hazard?

Adverse selection is a problem associated with equity and debt contracts arising from

The concept of adverse selection helps to explain why indirect finance is more important than direct finance as a source of business finance.

The free-rider problem

Adverse selection