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

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The free-rider problem affects decisions of participants in

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

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

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

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Diversified lending is intended to minimize transactions costs.

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Most external finance is channeled through intermediaries because of

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Asymmetric information leads to market inefficiencies.

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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.

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

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Which of the following does NOT involve a financial intermediary?

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

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

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

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

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The free-rider problem affects decisions of participants in

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Specialized lending helps lenders solve the problem of

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

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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.

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Specialized lending is intended to minimize adverse selection problems.

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

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