Question 1

What are the various ways that financial intermediaries can take advantage of economies of scale?

Accepted Answer

Standardized legal contracts enable the

Question 2

The presence of transactions costs and information costs

Accepted Answer

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

Question 3

From 2010-2015,which source of funds for corporations grew the most?

Accepted Answer

A)  net new stock issues 
B)  net new bond issues 
C)  net new loans 
D)  net new commercial paper 
A)  net new stock issues 
B)  net new bond issues 
C)  net new loans 
D)  net new commercial paper

Question 4

How are financial intermediaries able to reduce transactions costs?

Accepted Answer

Financial intermediaries are a

Question 5

In 1791,Congress established the Bank of the United States,which was set up as a

Accepted Answer

A)  private corporation with stock sold to the general public. 
B)  private corporation with stock sold only to financial institutions. 
C)  public enterprise funded solely by the federal government. 
D)  public enterprise which sold limited quantities of Treasury bonds for its initial funding. 
A)  private corporation with stock sold to the general public. 
B)  private corporation with stock sold only to financial institutions. 
C)  public enterprise funded solely by the federal government. 
D)  public enterprise which sold limited quantities of Treasury bonds for its initial funding.

Question 6

All of the following are benefits of securitization EXCEPT

Accepted Answer

A)  risk sharing. 
B)  reduced interest rates that borrowers pay on loans. 
C)  increased liquidity. 
D)  fewer adverse selection problems. 
A)  risk sharing. 
B)  reduced interest rates that borrowers pay on loans. 
C)  increased liquidity. 
D)  fewer adverse selection problems.

Question 7

In the 1790s,stock and bond markets were established in all of the following cities EXCEPT

Accepted Answer

A)  New York. 
B)  Boston. 
C)  Washington, D.C. 
D)  Philadelphia. 
A)  New York. 
B)  Boston. 
C)  Washington, D.C. 
D)  Philadelphia.

Question 8

When managers do NOT own very much of the net worth of the firm,then

Accepted Answer

A)  there may be a principal-agent problem. 
B)  the firm will usually have to raise most of its funds in financial markets. 
C)  the firm will have to rely more on equity financing than debt financing. 
D)  the firm will have to rely more on debt financing than equity financing. 
A)  there may be a principal-agent problem. 
B)  the firm will usually have to raise most of its funds in financial markets. 
C)  the firm will have to rely more on equity financing than debt financing. 
D)  the firm will have to rely more on debt financing than equity financing.

Question 9

Why is adverse selection more likely in financial markets when interest rates rise?

Accepted Answer

A)  The remaining borrowers are more likely to be risky. 
B)  Higher interest rates are likely to hurt the economy. 
C)  If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended. 
D)  Banks eliminate risky borrowers by raising interest rates. 
A)  The remaining borrowers are more likely to be risky. 
B)  Higher interest rates are likely to hurt the economy. 
C)  If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended. 
D)  Banks eliminate risky borrowers by raising interest rates.

Question 10

How does the use of collateral and net worth help reduce the problem of adverse selection?

Accepted Answer

To make it more costly for firms to take

Question 11

The "lemons problem" in the used car market arises from

Accepted Answer

A)  the difficulty U.S. producers have in making reliable cars. 
B)  the difficulty buyers have in distinguishing good cars from lemons. 
C)  the tendency of buyers of used cars to pay for them with bad checks. 
D)  the reluctance of many car dealers to handle used cars. 
A)  the difficulty U.S. producers have in making reliable cars. 
B)  the difficulty buyers have in distinguishing good cars from lemons. 
C)  the tendency of buyers of used cars to pay for them with bad checks. 
D)  the reluctance of many car dealers to handle used cars.

Question 12

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

Accepted Answer

First,some good firms may be too young t

Question 13

Credit rationing refers to

Accepted Answer

A)  the increase in the interest rate that occurs when the demand for credit increases. 
B)  the increase in the interest rate that occurs when the supply of credit increases. 
C)  the increase in the interest rate that occurs when the supply of credit decreases. 
D)  a restriction in the availability of credit. 
A)  the increase in the interest rate that occurs when the demand for credit increases. 
B)  the increase in the interest rate that occurs when the supply of credit increases. 
C)  the increase in the interest rate that occurs when the supply of credit decreases. 
D)  a restriction in the availability of credit.

Question 14

The main reason why banks are the leading source of external finance for businesses is

Accepted Answer

A)  the interest rates on bank loans are usually lower than interest rates on corporate bonds. 
B)  banks have an information-cost advantage in reducing adverse selection problems. 
C)  interest paid on bank loans is deductible against the corporate income tax, whereas interest paid on corporate bonds is not. 
D)  government regulators encourage small businesses to obtain funding from banks. 
A)  the interest rates on bank loans are usually lower than interest rates on corporate bonds. 
B)  banks have an information-cost advantage in reducing adverse selection problems. 
C)  interest paid on bank loans is deductible against the corporate income tax, whereas interest paid on corporate bonds is not. 
D)  government regulators encourage small businesses to obtain funding from banks.

Question 15

In regard to crowdfunding,investors with incomes or net worth of greater than $100,000 can invest up to ________ per year in equity in startups through online crowdfunding sites.

Accepted Answer

A)  $10,000 
B)  $50,000 
C)  10% of their income or net worth 
D)  40% of their income or net worth 
A)  $10,000 
B)  $50,000 
C)  10% of their income or net worth 
D)  40% of their income or net worth

Question 16

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 17

The connection between a developed country's financial system and the performance of the country's economy

Accepted Answer

A)  was significant in the late 1700s and early 1800s, but has mostly disappeared since that time. 
B)  was strong up until the Great Depression, when the connection was permanently lost. 
C)  has only become significant since the end of World War II. 
D)  was recognized in the early days of the country and remains strong today. 
A)  was significant in the late 1700s and early 1800s, but has mostly disappeared since that time. 
B)  was strong up until the Great Depression, when the connection was permanently lost. 
C)  has only become significant since the end of World War II. 
D)  was recognized in the early days of the country and remains strong today.

Question 18

A firm's agents are its

Accepted Answer

A)  shareholders. 
B)  management. 
C)  marketing department. 
D)  customers. 
A)  shareholders. 
B)  management. 
C)  marketing department. 
D)  customers.

Question 19

One method that lenders use to mitigate the adverse selection problem is to

Accepted Answer

A)  charge higher interest rates to less creditworthy borrowers. 
B)  monitor closely the behavior of borrowers after a loan is made. 
C)  ration credit. 
D)  provide default insurance. 
A)  charge higher interest rates to less creditworthy borrowers. 
B)  monitor closely the behavior of borrowers after a loan is made. 
C)  ration credit. 
D)  provide default insurance.

Question 20

Briefly explain what was done in the early years of George Washington's administration that helped the United States develop a modern financial system.

Accepted Answer

The federal government paid off the bond

What are the various ways that financial intermediaries can take advantage of economies of scale?

The presence of transactions costs and information costs

From 2010-2015,which source of funds for corporations grew the most?

How are financial intermediaries able to reduce transactions costs?

In 1791,Congress established the Bank of the United States,which was set up as a

All of the following are benefits of securitization EXCEPT

In the 1790s,stock and bond markets were established in all of the following cities EXCEPT

When managers do NOT own very much of the net worth of the firm,then

Why is adverse selection more likely in financial markets when interest rates rise?

How does the use of collateral and net worth help reduce the problem of adverse selection?

The "lemons problem" in the used car market arises from

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

Credit rationing refers to

The main reason why banks are the leading source of external finance for businesses is

In regard to crowdfunding,investors with incomes or net worth of greater than $100,000 can invest up to ________ per year in equity in startups through online crowdfunding sites.

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

The connection between a developed country's financial system and the performance of the country's economy

A firm's agents are its

One method that lenders use to mitigate the adverse selection problem is to

Briefly explain what was done in the early years of George Washington's administration that helped the United States develop a modern financial system.

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

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

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

What are the various ways that financial intermediaries can take advantage of economies of scale?

The presence of transactions costs and information costs

From 2010-2015,which source of funds for corporations grew the most?

How are financial intermediaries able to reduce transactions costs?

In 1791,Congress established the Bank of the United States,which was set up as a

All of the following are benefits of securitization EXCEPT

In the 1790s,stock and bond markets were established in all of the following cities EXCEPT

When managers do NOT own very much of the net worth of the firm,then

Why is adverse selection more likely in financial markets when interest rates rise?

How does the use of collateral and net worth help reduce the problem of adverse selection?

The "lemons problem" in the used car market arises from

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

Credit rationing refers to

The main reason why banks are the leading source of external finance for businesses is

In regard to crowdfunding,investors with incomes or net worth of greater than $100,000 can invest up to ________ per year in equity in startups through online crowdfunding sites.

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

The connection between a developed country's financial system and the performance of the country's economy

A firm's agents are its

One method that lenders use to mitigate the adverse selection problem is to

Briefly explain what was done in the early years of George Washington's administration that helped the United States develop a modern financial system.

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

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

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