Question 1

The financial system is one of the most heavily regulated sectors of the economy.

Accepted Answer

A) True 
 B)False

Question 2

The principal-agent problem

Accepted Answer

A)  occurs when managers have more incentive to maximize profits than the stockholders-owners do. 
B)  would not arise if the owners of the firm had complete information about the activities of the managers. 
C)  in financial markets helps to explain why equity is a relatively important source of finance for American businesses. 
D)  all of the above. 
E)  only A and B of the above. 
A)  occurs when managers have more incentive to maximize profits than the stockholders-owners do. 
B)  would not arise if the owners of the firm had complete information about the activities of the managers. 
C)  in financial markets helps to explain why equity is a relatively important source of finance for American businesses. 
D)  all of the above. 
E)  only A and B of the above.

Question 3

If borrowers take on big risks after obtaining a loan,then lenders face the problem of

Accepted Answer

A)  free-riding. 
B)  adverse selection. 
C)  moral hazard. 
D)  costly state verification. 
A)  free-riding. 
B)  adverse selection. 
C)  moral hazard. 
D)  costly state verification.

Question 4

One reason why indirect financing is used is to minimize adverse selection problems.

Accepted Answer

A) True 
 B)False

Question 5

Collateral is

Accepted Answer

A)  property that is pledged to the lender if a borrower cannot make his or her debt payments. 
B)  a prevalent feature of debt contracts for households. 
C)  a prevalent feature of debt contracts for businesses. 
D)  all of the above. 
E)  only A and C of the above. 
A)  property that is pledged to the lender if a borrower cannot make his or her debt payments. 
B)  a prevalent feature of debt contracts for households. 
C)  a prevalent feature of debt contracts for businesses. 
D)  all of the above. 
E)  only A and C of the above.

Question 6

Equity contracts account for a small fraction of external funds raised by American businesses because

Accepted Answer

A)  costly state verification makes the equity contract less desirable than the debt contract. 
B)  there is greater scope for moral hazard problems under equity contracts, as compared to debt contracts. 
C)  equity contracts do not permit borrowing firms to raise additional funds by issuing debt. 
D)  all of the above. 
E)  both A and B of the above. 
A)  costly state verification makes the equity contract less desirable than the debt contract. 
B)  there is greater scope for moral hazard problems under equity contracts, as compared to debt contracts. 
C)  equity contracts do not permit borrowing firms to raise additional funds by issuing debt. 
D)  all of the above. 
E)  both A and B of the above.

Question 7

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

Accepted Answer

A)  one-quarter of borrowing by nonfinancial businesses. 
B)  one-half of borrowing by nonfinancial businesses. 
C)  one-twentieth of borrowing by nonfinancial businesses. 
D)  two-thirds of borrowing by nonfinancial businesses. 
A)  one-quarter of borrowing by nonfinancial businesses. 
B)  one-half of borrowing by nonfinancial businesses. 
C)  one-twentieth of borrowing by nonfinancial businesses. 
D)  two-thirds of borrowing by nonfinancial businesses.

The financial system is one of the most heavily regulated sectors of the economy.

The principal-agent problem

If borrowers take on big risks after obtaining a loan,then lenders face the problem of

One reason why indirect financing is used is to minimize adverse selection problems.

Collateral is

Equity contracts account for a small fraction of external funds raised by American businesses because

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

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Exam 7: Why Do Financial Institutions Exist?

The financial system is one of the most heavily regulated sectors of the economy.

The principal-agent problem

If borrowers take on big risks after obtaining a loan,then lenders face the problem of

One reason why indirect financing is used is to minimize adverse selection problems.

Collateral is

Equity contracts account for a small fraction of external funds raised by American businesses because

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

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters