Exam 8: An Economic Analysis of Financial Structure

Explain the four tools that can help solve the principal-agent problem.

As a source of funds for nonfinancial businesses, bonds are relatively more important than stocks in ________.

Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds ________.

The predominant form of household debt is ________.

Bundling investors funds together ________.

A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a ________.

Liquidity service offered by financial intermediary make it ________.

Equity contracts account for a small fraction of external funds raised by Canadian businesses because ________.

How do restrictive covenants reduce moral hazard in debt contracts?

Because of the adverse selection problem, ________.

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

Because of the "lemons problem" the price a buyer of a used car pays is ________.

As information technology improves, the lending role of financial institutions such as banks should ________.

China's reforms to strengthen the financial system includes ________.

The free-rider problem occurs because ________.

The reduction in transactions costs per dollar of investment as the size of transactions increases is known as ________.

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

If you default on your auto loan, your car will be repossessed because it has been pledged as ________ for the loan.

Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.

One purpose of regulation of financial markets is to ________.