Exam 8: An Economic Analysis of Financial Structure

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

The problem of adverse selection helps to explain ________.

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

Although restrictive covenants can potentially reduce moral hazard,a problem with restrictive covenants is that ________.

Which of the following is not one of the eight basic puzzles about financial structure?

The predominant form of household debt is ________.

Venture capital firms have been important in developing the ________ sector in Canada.

The "lemons problem" is a term used to describe the ________.

The free-rider problem occurs because ________.

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

A problem for equity contracts is a particular type of ________ called the ________ problem.

Explain how high net worth and collateral reduce the problem of moral hazard.

Of the following sources of external finance for Canadian nonfinancial businesses,the least important is ________.

A solution to the high transaction costs is to bundle the funds of many investors so that they can take advantage of ________.

As a source of funds for nonfinancial businesses,bonds are relatively more important than stocks in ________.

How does collateral help to reduce the adverse selection problem in credit market?

One way of describing the solution that high net worth provides to the moral hazard problem is to say that it ________.

The concept of adverse selection helps to explain ________.

The solution to the adverse selection problem in financial markets is to ________.

Explain the four tools that can help solve the principal-agent problem.