Question 1

Banks require collateral for loans in order to

Accepted Answer

A)  ensure that borrowers have significant amounts of their own funds invested in their businesses. 
B)  charge higher interest rates on loans. 
C)  reduce their tax liability on the interest they collect on loans. 
D)  reduce the total amount they are obliged to lend to any one borrower. 
A)  ensure that borrowers have significant amounts of their own funds invested in their businesses. 
B)  charge higher interest rates on loans. 
C)  reduce their tax liability on the interest they collect on loans. 
D)  reduce the total amount they are obliged to lend to any one borrower.

Question 2

How do high interest rates increase the risk of adverse selection in the bond market?

Accepted Answer

Investors often reason that as interest

Question 3

Information costs

Accepted Answer

A)  are the costs of buying and selling financial claims. 
B)  include the costs that savers incur to determine the credit worthiness of borrowers. 
C)  include the costs borrowers incur to discover the best investments to make with the money they have borrowed. 
D)  are zero in financial markets, but high for transactions carried out through financial intermediaries. 
A)  are the costs of buying and selling financial claims. 
B)  include the costs that savers incur to determine the credit worthiness of borrowers. 
C)  include the costs borrowers incur to discover the best investments to make with the money they have borrowed. 
D)  are zero in financial markets, but high for transactions carried out through financial intermediaries.

Question 4

The purpose of collateral and restrictive covenants is to reduce ________ in debt contracts.

Accepted Answer

A)  adverse selection 
B)  transactions costs 
C)  moral hazard 
D)  loan amounts 
A)  adverse selection 
B)  transactions costs 
C)  moral hazard 
D)  loan amounts

Question 5

How does adverse selection affect the economic efficiency of the used car market?

Accepted Answer

Since potential buyers have a

Question 6

What are the three key features of the financial system that result from the existence of transactions and information costs?

Accepted Answer

First,loans from financial intermediarie

Question 7

By reducing transactions and information costs,financial intermediaries can

Accepted Answer

A)  offer savers higher interest rates. 
B)  offer borrowers lower interest rates. 
C)  earn a profit. 
D)  all of the above. 
A)  offer savers higher interest rates. 
B)  offer borrowers lower interest rates. 
C)  earn a profit. 
D)  all of the above.

Question 8

Moral hazard is NOT eliminated in debt financing because

Accepted Answer

A)  borrowers have an incentive to assume greater risk than is in the interest of the lender. 
B)  firms with a great deal of debt often go bankrupt. 
C)  principal-agent problems are greater with debt financing than with equity financing. 
D)  the use of restrictive covenants tends to increase moral hazard. 
A)  borrowers have an incentive to assume greater risk than is in the interest of the lender. 
B)  firms with a great deal of debt often go bankrupt. 
C)  principal-agent problems are greater with debt financing than with equity financing. 
D)  the use of restrictive covenants tends to increase moral hazard.

Question 9

During the 1800s,the United States experienced ________ growth rates when compared to other countries that had also experienced substantial European immigration.

Accepted Answer

A)  similar 
B)  much lower 
C)  significantly higher 
D)  negative 
A)  similar 
B)  much lower 
C)  significantly higher 
D)  negative

Question 10

The reduction in transactions costs brought about by financial intermediaries benefits

Accepted Answer

A)  small savers, but not small borrowers. 
B)  small borrowers, but not small savers. 
C)  both small savers and small borrowers. 
D)  society through greater economic efficiency; small savers and borrowers do not gain directly. 
A)  small savers, but not small borrowers. 
B)  small borrowers, but not small savers. 
C)  both small savers and small borrowers. 
D)  society through greater economic efficiency; small savers and borrowers do not gain directly.

Question 11

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

Accepted Answer

A)  $1,000 
B)  $2,000 
C)  $25,000 
D)  Investors must have incomes or net worth of greater that $100,000 to invest in startups through crowdfunding sites. 
A)  $1,000 
B)  $2,000 
C)  $25,000 
D)  Investors must have incomes or net worth of greater that $100,000 to invest in startups through crowdfunding sites.

Question 12

Transactions costs are

Accepted Answer

A)  zero in financial markets. 
B)  zero in financial intermediaries. 
C)  the costs of direct financial transactions. 
D)  equal to the taxes imposed on financial transactions. 
A)  zero in financial markets. 
B)  zero in financial intermediaries. 
C)  the costs of direct financial transactions. 
D)  equal to the taxes imposed on financial transactions.

Question 13

Which of the following concerns were raised as a result of record low interest rates in 2016?

Accepted Answer

A)  high perceived risk of default 
B)  high interest rate risk 
C)  corporations facing a lack of demand for bonds 
D)  high risk premiums on investment-grade corporate bonds 
A)  high perceived risk of default 
B)  high interest rate risk 
C)  corporations facing a lack of demand for bonds 
D)  high risk premiums on investment-grade corporate bonds

Question 14

Moral hazard problems arise when

Accepted Answer

A)  lenders have difficulty in distinguishing between good and lemon firms. 
B)  a downturn in economic activity makes repaying loans difficult for borrowers. 
C)  borrowers have an incentive to act in ways that do not reflect the lender's interests. 
D)  borrowers default on loans. 
A)  lenders have difficulty in distinguishing between good and lemon firms. 
B)  a downturn in economic activity makes repaying loans difficult for borrowers. 
C)  borrowers have an incentive to act in ways that do not reflect the lender's interests. 
D)  borrowers default on loans.

Question 15

Which of the following is NOT true of restrictive covenants?

Accepted Answer

A)  They sometimes require borrowers to maintain the value of collateral offered to the lender. 
B)  They increase the marketability and liquidity of loans. 
C)  They sometimes require a borrower to maintain a certain minimum level of net worth. 
D)  They sometimes limit a borrower's risk taking. 
A)  They sometimes require borrowers to maintain the value of collateral offered to the lender. 
B)  They increase the marketability and liquidity of loans. 
C)  They sometimes require a borrower to maintain a certain minimum level of net worth. 
D)  They sometimes limit a borrower's risk taking.

Question 16

Which of the following does NOT represent a way in which financial intermediaries take advantage of economies of scale?

Accepted Answer

A)  paying lower brokerage fees per dollar invested 
B)  paying lower legal fees per dollar invested 
C)  purchasing sophisticated computer systems 
D)  paying lower taxes per dollar invested 
A)  paying lower brokerage fees per dollar invested 
B)  paying lower legal fees per dollar invested 
C)  purchasing sophisticated computer systems 
D)  paying lower taxes per dollar invested

Question 17

Why are corporations more likely to raise funds externally by debt instead of equity?

Accepted Answer

A)  moral hazard is less of a problem with debt contracts 
B)  transactions costs tend to be higher in the stock market than bond market 
C)  to avoid paying dividends 
D)  interest rates tend to be lower than dividend rates 
A)  moral hazard is less of a problem with debt contracts 
B)  transactions costs tend to be higher in the stock market than bond market 
C)  to avoid paying dividends 
D)  interest rates tend to be lower than dividend rates

Question 18

Adverse selection and moral hazard are examples of

Accepted Answer

A)  transactions costs. 
B)  information costs. 
C)  symmetric information. 
D)  financial market efficiency. 
A)  transactions costs. 
B)  information costs. 
C)  symmetric information. 
D)  financial market efficiency.

Banks require collateral for loans in order to

How do high interest rates increase the risk of adverse selection in the bond market?

Information costs

The purpose of collateral and restrictive covenants is to reduce ________ in debt contracts.

How does adverse selection affect the economic efficiency of the used car market?

What are the three key features of the financial system that result from the existence of transactions and information costs?

By reducing transactions and information costs,financial intermediaries can

Moral hazard is NOT eliminated in debt financing because

During the 1800s,the United States experienced ________ growth rates when compared to other countries that had also experienced substantial European immigration.

The reduction in transactions costs brought about by financial intermediaries benefits

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

Transactions costs are

Which of the following concerns were raised as a result of record low interest rates in 2016?

Moral hazard problems arise when

Which of the following is NOT true of restrictive covenants?

Which of the following does NOT represent a way in which financial intermediaries take advantage of economies of scale?

Why are corporations more likely to raise funds externally by debt instead of equity?

Adverse selection and moral hazard are examples of

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

Banks require collateral for loans in order to

How do high interest rates increase the risk of adverse selection in the bond market?

Information costs

The purpose of collateral and restrictive covenants is to reduce ________ in debt contracts.

How does adverse selection affect the economic efficiency of the used car market?

What are the three key features of the financial system that result from the existence of transactions and information costs?

By reducing transactions and information costs,financial intermediaries can

Moral hazard is NOT eliminated in debt financing because

During the 1800s,the United States experienced ________ growth rates when compared to other countries that had also experienced substantial European immigration.

The reduction in transactions costs brought about by financial intermediaries benefits

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

Transactions costs are

Which of the following concerns were raised as a result of record low interest rates in 2016?

Moral hazard problems arise when

Which of the following is NOT true of restrictive covenants?

Which of the following does NOT represent a way in which financial intermediaries take advantage of economies of scale?

Why are corporations more likely to raise funds externally by debt instead of equity?

Adverse selection and moral hazard are examples of

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