Exam 8: An Economic Analysis of Financial Structure

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

Explain the principal-agent problem as it pertains to equity contracts.

Analysis of adverse selection indicates that financial intermediaries,especially banks

Of the following sources of external finance for American nonfinancial businesses,the least important is

How does a mutual fund lower transactions costs through economies of scale?

Of the sources of external funds for nonfinancial businesses in the United States,corporate bonds and commercial paper account for approximately ________ of the total.

A debt contract is incentive compatible

Managers (________)may act in their own interest rather than in the interest of the stockholder-owners (________)because the managers have less incentive to maximize profits than the stockholder-owners do.

A lesson of the Enron collapse is that government regulation

Although debt contracts require less monitoring than equity contracts,debt contracts are still subject to ________ since borrowers have an incentive to take on more risk than the lender would like.

The problem faced by the lender that the borrower may take on additional risk after receiving the loan is called

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

The high growth rate in China in the last twenty years has similarities to the high growth rate of ________ during the 1950s and 1960s.

Professional athletes often have contract clauses prohibiting risky activities such as skiing and motorcycle riding. These clauses are

Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.

A venture capital firm protects its equity investment from moral hazard through which of the following means?