Question 1

The free-rider problem affects decisions of participants in

Accepted Answer

A)  the stock market. 
B)  internal finance 
C)  both of the above. 
D)  neither of the above. 
A)  the stock market. 
B)  internal finance 
C)  both of the above. 
D)  neither of the above.

Question 2

Restrictive covenants are required by lenders to help solve the problem of

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above. 
A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above.

Question 3

What is the free-rider problem in relation to the stock market?

Accepted Answer

Stock market investors do have

Question 4

Which of the following is an example of a source of internal finance?

Accepted Answer

A)  corporate bonds 
B)  withheld earnings 
C)  commercial loans 
D)  none of the above 
A)  corporate bonds 
B)  withheld earnings 
C)  commercial loans 
D)  none of the above

Question 5

Diversified lending is intended to minimize transactions costs.

Accepted Answer

A) True 
 B)False

Question 6

Most external finance is channeled through intermediaries because of

Accepted Answer

A)  asymmetric information. 
B)  agency costs. 
C)  monitoring costs. 
D)  none of the above. 
A)  asymmetric information. 
B)  agency costs. 
C)  monitoring costs. 
D)  none of the above.

Question 7

Asymmetric information leads to market inefficiencies.

Accepted Answer

A) True 
 B)False

Question 8

Give an example of monitoring and restrictive covenants the bank might require if you took a loan from a bank to open a clothing store.

Accepted Answer

The bank could require the fun

Question 9

Does screening help minimize adverse selection of moral hazard problems? Explain briefly.

Accepted Answer

Screening is the process of de

Question 10

Which of the following does NOT involve a financial intermediary?

Accepted Answer

A)  saving for retirement 
B)  buying a treasury bond from the government 
C)  buying stock online 
D)  all of the above 
A)  saving for retirement 
B)  buying a treasury bond from the government 
C)  buying stock online 
D)  all of the above

Question 11

It is difficult to make profits in the mortgage market due to the free-rider problem.

Accepted Answer

A) True 
 B)False

Question 12

When a child saves her allowance to buy a toy, she is engaged in external finance.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a technique lenders use to alleviate the adverse selection problem?

Accepted Answer

A)  screening 
B)  monitoring borrower activity 
C)  legal restrictions on the use of funds 
D)  all of the above 
A)  screening 
B)  monitoring borrower activity 
C)  legal restrictions on the use of funds 
D)  all of the above

Question 14

When banks refuse to lend to borrowers at very high rates of interest, they are trying to alleviate the moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 15

The free-rider problem affects decisions of participants in

Accepted Answer

A)  the stock market. 
B)  IPOs. 
C)  both of the above. 
D)  neither of the above. 
A)  the stock market. 
B)  IPOs. 
C)  both of the above. 
D)  neither of the above.

Question 16

Specialized lending helps lenders solve the problem of

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above. 
A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above.

Question 17

Laws against fraudulent reporting on financial documents are an attempt to reduce agency problems.

Accepted Answer

A) True 
 B)False

Question 18

Banks are said to ration credit when they refuse to lend above a certain interest rate. The purpose of such a policy is to minimize _____ of lending.

Accepted Answer

A)  adverse selection problems 
B)  moral hazard problems 
C)  transactions costs 
D)  all of the above 
A)  adverse selection problems 
B)  moral hazard problems 
C)  transactions costs 
D)  all of the above

Question 19

Specialized lending is intended to minimize adverse selection problems.

Accepted Answer

A) True 
 B)False

Question 20

The majority of external finance for firms comes from stock issues.

Accepted Answer

A) True 
 B)False

Exam 8: Financial Structure, Transaction Costs, and Asymmetric Information

The free-rider problem affects decisions of participants in

Restrictive covenants are required by lenders to help solve the problem of

What is the free-rider problem in relation to the stock market?

Which of the following is an example of a source of internal finance?

Diversified lending is intended to minimize transactions costs.

Most external finance is channeled through intermediaries because of

Asymmetric information leads to market inefficiencies.

Give an example of monitoring and restrictive covenants the bank might require if you took a loan from a bank to open a clothing store.

Does screening help minimize adverse selection of moral hazard problems? Explain briefly.

Which of the following does NOT involve a financial intermediary?

It is difficult to make profits in the mortgage market due to the free-rider problem.

When a child saves her allowance to buy a toy, she is engaged in external finance.

Which of the following is a technique lenders use to alleviate the adverse selection problem?

When banks refuse to lend to borrowers at very high rates of interest, they are trying to alleviate the moral hazard problem.

The free-rider problem affects decisions of participants in

Specialized lending helps lenders solve the problem of

Laws against fraudulent reporting on financial documents are an attempt to reduce agency problems.

Banks are said to ration credit when they refuse to lend above a certain interest rate. The purpose of such a policy is to minimize _____ of lending.

Specialized lending is intended to minimize adverse selection problems.

The majority of external finance for firms comes from stock issues.

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

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