Exam 8: An Economic Analysis of Financial Structure

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

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

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

One financial intermediary in our financial structure that helps to reduce the moral hazard from arising from the principal-agent problem is the

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

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

Since they require less monitoring of firms,________ contracts are used more frequently than ________ contracts to raise capital.

If bad credit risks are the ones who most actively seek loans then financial intermediaries face the problem of

Why does the free-rider problem occur in the debt market?

The current structure of financial markets can be best understood as the result of attempts by financial market participants to

A venture capital firm protects its equity investment from moral hazard through which of the following means?

A debt contract is incentive compatible

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

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

An example of the ________ problem would be if Brian borrowed money from Sean in order to purchase a used car and instead took a trip to Atlantic City using those funds.

Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called

Of the sources of external funds for nonfinancial businesses in the United States,stocks account for approximately ________ of the total.

Because information is scarce

The problem of adverse selection helps to explain

Debt contracts