Question 1

Which of the following is NOT an example of transactions costs?

Accepted Answer

A)  High interest rates 
B)  Lawyers' fees 
C)  Brokerage commissions 
D)  Minimum investment requirements 
A)  High interest rates 
B)  Lawyers' fees 
C)  Brokerage commissions 
D)  Minimum investment requirements

Question 2

What are the reasons why disclosure by the SEC do not eliminate the information costs of adverse selection?

Accepted Answer

First,some good firms may be too young t

Question 3

How does adverse selection in financial markets affect the method by which firms raise funds?

Accepted Answer

When investors have difficulty obtaining

Question 4

Private information-collection firms fail to eliminate the adverse selection problem because

Accepted Answer

A)  the law does not allow them to disclose private information about the creditworthiness of firms. 
B)  they do not monitor borrowers after loans have been made. 
C)  some investors who do not pay for their services will still profit from them. 
D)  most companies refuse to provide them with any information. 
A)  the law does not allow them to disclose private information about the creditworthiness of firms. 
B)  they do not monitor borrowers after loans have been made. 
C)  some investors who do not pay for their services will still profit from them. 
D)  most companies refuse to provide them with any information.

Question 5

Economies of scale are

Accepted Answer

A)  charges to savers and borrowers imposed by banks in exchange for reducing transactions costs. 
B)  the reduction in costs per unit that accompanies an increase in volume. 
C)  decreases in transactions costs that occur as information costs increase. 
D)  decreases in information costs that occur as transactions costs increase. 
A)  charges to savers and borrowers imposed by banks in exchange for reducing transactions costs. 
B)  the reduction in costs per unit that accompanies an increase in volume. 
C)  decreases in transactions costs that occur as information costs increase. 
D)  decreases in information costs that occur as transactions costs increase.

Question 6

When there's asymmetric information,who tends to have the better information?

Accepted Answer

A)  lender 
B)  borrower 
C)  intermediary 
D)  equally likely to be the borrower or the lender 
A)  lender 
B)  borrower 
C)  intermediary 
D)  equally likely to be the borrower or the lender

Question 7

When information costs of securities are very high,they lack

Accepted Answer

A)  collateral. 
B)  transparency. 
C)  transactions costs. 
D)  creditworthiness. 
A)  collateral. 
B)  transparency. 
C)  transactions costs. 
D)  creditworthiness.

Question 8

Generally,when there is asymmetric information

Accepted Answer

A)  a lender will only lend to the government. 
B)  a lender will only lend to well-known borrowers. 
C)  practical solutions are devised to allow lending to take place. 
D)  a lender will cease all lending activities. 
A)  a lender will only lend to the government. 
B)  a lender will only lend to well-known borrowers. 
C)  practical solutions are devised to allow lending to take place. 
D)  a lender will cease all lending activities.

Question 9

By reducing transactions and information costs,financial intermediaries can

Accepted Answer

A)  offer savers higher interest rates. 
B)  offer borrowers lower interest rates. 
C)  earn a profit. 
D)  all of the above. 
A)  offer savers higher interest rates. 
B)  offer borrowers lower interest rates. 
C)  earn a profit. 
D)  all of the above.

Question 10

A firm's net worth is equal to the value of its

Accepted Answer

A)  assets minus the value of its liabilities. 
B)  liabilities minus the value of its assets. 
C)  common stock minus the value of its outstanding bonds. 
D)  outstanding bonds minus the value of its common stock. 
A)  assets minus the value of its liabilities. 
B)  liabilities minus the value of its assets. 
C)  common stock minus the value of its outstanding bonds. 
D)  outstanding bonds minus the value of its common stock.

Question 11

How does adverse selection affect the economic efficiency of the used car market?

Accepted Answer

Since potential buyers have a

Question 12

What are the three key features of the financial system that result from the existence of transactions and information costs?

Accepted Answer

First,loans from financial intermediarie

Question 13

How does adverse selection affect the participation of small- and medium-sized firms in the stock market?

Accepted Answer

Many small- and medium-sized firms will

Question 14

With debt financing

Accepted Answer

A)  moral hazard problems are eliminated. 
B)  moral hazard problems are reduced but not eliminated. 
C)  adverse selection problems are eliminated. 
D)  firms reduce the risk that they will become bankrupt during a recession. 
A)  moral hazard problems are eliminated. 
B)  moral hazard problems are reduced but not eliminated. 
C)  adverse selection problems are eliminated. 
D)  firms reduce the risk that they will become bankrupt during a recession.

Question 15

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

Accepted Answer

A)  improve. 
B)  deteriorate. 
C)  be unchanged. 
D)  be unchanged, unless the economy enters a recession at the same time as the interest rate is increased. 
A)  improve. 
B)  deteriorate. 
C)  be unchanged. 
D)  be unchanged, unless the economy enters a recession at the same time as the interest rate is increased.

Question 16

How do car dealers help reduce adverse selection?

Accepted Answer

To maintain their reputations

Question 17

A market maker

Accepted Answer

A)  brings together buyers and sellers of a financial asset. 
B)  ensures all information is available to buyers and sellers. 
C)  disclose to the seller the intentions of the buyer. 
D)  disclose to the buyer the intentions of the seller. 
A)  brings together buyers and sellers of a financial asset. 
B)  ensures all information is available to buyers and sellers. 
C)  disclose to the seller the intentions of the buyer. 
D)  disclose to the buyer the intentions of the seller.

Question 18

The presence of transactions costs and information costs

Accepted Answer

A)  lowers the cost of funds to borrowers. 
B)  raises the cost of funds to borrowers. 
C)  raises the expected return to lenders. 
D)  increases the efficiency of the financial system. 
A)  lowers the cost of funds to borrowers. 
B)  raises the cost of funds to borrowers. 
C)  raises the expected return to lenders. 
D)  increases the efficiency of the financial system.

Question 19

In the United States the stake of top management in firms' ownership usually is

Accepted Answer

A)  less than 5%. 
B)  more than 25%. 
C)  more than 50%. 
D)  more than 75%. 
A)  less than 5%. 
B)  more than 25%. 
C)  more than 50%. 
D)  more than 75%.

Question 20

The use of collateral

Accepted Answer

A)  allows banks to charge higher interest rates on loans. 
B)  makes it more costly for borrowers to take advantage of their asymmetric information. 
C)  makes it more costly for lenders to take advantage of their asymmetric information. 
D)  has important tax implications for both borrowers and lenders. 
A)  allows banks to charge higher interest rates on loans. 
B)  makes it more costly for borrowers to take advantage of their asymmetric information. 
C)  makes it more costly for lenders to take advantage of their asymmetric information. 
D)  has important tax implications for both borrowers and lenders.

Which of the following is NOT an example of transactions costs?

What are the reasons why disclosure by the SEC do not eliminate the information costs of adverse selection?

How does adverse selection in financial markets affect the method by which firms raise funds?

Private information-collection firms fail to eliminate the adverse selection problem because

Economies of scale are

When there's asymmetric information,who tends to have the better information?

When information costs of securities are very high,they lack

Generally,when there is asymmetric information

By reducing transactions and information costs,financial intermediaries can

A firm's net worth is equal to the value of its

How does adverse selection affect the economic efficiency of the used car market?

What are the three key features of the financial system that result from the existence of transactions and information costs?

How does adverse selection affect the participation of small- and medium-sized firms in the stock market?

With debt financing

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

How do car dealers help reduce adverse selection?

A market maker

The presence of transactions costs and information costs

In the United States the stake of top management in firms' ownership usually is

The use of collateral

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 9: Transactions Costs, asymmetric Information, and the Structure of the Financial System

Which of the following is NOT an example of transactions costs?

What are the reasons why disclosure by the SEC do not eliminate the information costs of adverse selection?

How does adverse selection in financial markets affect the method by which firms raise funds?

Private information-collection firms fail to eliminate the adverse selection problem because

Economies of scale are

When there's asymmetric information,who tends to have the better information?

When information costs of securities are very high,they lack

Generally,when there is asymmetric information

By reducing transactions and information costs,financial intermediaries can

A firm's net worth is equal to the value of its

How does adverse selection affect the economic efficiency of the used car market?

What are the three key features of the financial system that result from the existence of transactions and information costs?

How does adverse selection affect the participation of small- and medium-sized firms in the stock market?

With debt financing

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

How do car dealers help reduce adverse selection?

A market maker

The presence of transactions costs and information costs

In the United States the stake of top management in firms' ownership usually is

The use of collateral

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters