Question 1

In effect, banks are able to charge

Accepted Answer

A) depositors for banks' superior information about borrowers. 
B) borrowers for banks' superior information about depositors. 
C) the government for banks' superior information about borrowers and depositors. 
D) interest rates that are in fact above those legally allowed. 
A) depositors for banks' superior information about borrowers. 
B) borrowers for banks' superior information about depositors. 
C) the government for banks' superior information about borrowers and depositors. 
D) interest rates that are in fact above those legally allowed.

Question 2

Which of the following is the most likely result of financial intermediaries?

Accepted Answer

A) increased funds available to borrowers 
B) higher transaction costs 
C) higher information costs 
D) lower information cost but higher transaction costs 
A) increased funds available to borrowers 
B) higher transaction costs 
C) higher information costs 
D) lower information cost but higher transaction costs

Question 3

Which of the following concerns were raised as a result of record low interest rates in 2012?

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 4

Which of the following agencies has established standardized accounting principles for reporting corporate earnings?

Accepted Answer

A) The Securities and Exchange Commission 
B) The Federal Trade Commission 
C) The National Accounting Board 
D) The Fair Reporting Commission 
A) The Securities and Exchange Commission 
B) The Federal Trade Commission 
C) The National Accounting Board 
D) The Fair Reporting Commission

Question 5

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 6

Small investors face

Accepted Answer

A) high transactions costs in financial markets. 
B) low transactions costs in financial markets. 
C) high transactions costs in financial intermediaries. 
D) high information costs in financial intermediaries. 
A) high transactions costs in financial markets. 
B) low transactions costs in financial markets. 
C) high transactions costs in financial intermediaries. 
D) high information costs in financial intermediaries.

Question 7

Smaller firms tend to rely on financial intermediaries instead of financial markets for external financing due to

Accepted Answer

A) transactions costs. 
B) adverse selection. 
C) moral hazard. 
D) all of the above. 
A) transactions costs. 
B) adverse selection. 
C) moral hazard. 
D) all of the above.

Question 8

How can restrictive covenants help to reduce moral hazard in bond markets?

Accepted Answer

Restrictive covenants either p

Question 9

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

Accepted Answer

Standardized legal contracts enable the

Question 10

Symmetric information

Accepted Answer

A) is the same as perfect information. 
B) holds under the assumption of rational expectations. 
C) is true only in efficient markets. 
D) means that savers and borrowers have the same information. 
A) is the same as perfect information. 
B) holds under the assumption of rational expectations. 
C) is true only in efficient markets. 
D) means that savers and borrowers have the same information.

Question 11

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

Accepted Answer

First, some good firms may be too young

Question 12

Moral hazard problems arise when

Accepted Answer

A) lenders have difficulty in distinguishing between good and lemon firms. 
B) when a downturn in economic activity makes repaying loans difficult for borrowers. 
C) borrowers default on loans. 
D) borrowers have an incentive to conceal information. 
A) lenders have difficulty in distinguishing between good and lemon firms. 
B) when a downturn in economic activity makes repaying loans difficult for borrowers. 
C) borrowers default on loans. 
D) borrowers have an incentive to conceal information.

Question 13

How are financial intermediaries able to reduce transactions costs?

Accepted Answer

Financial intermediaries are a

Question 14

Restrictive covenants

Accepted Answer

A) generally require that firms use debt finance rather than equity finance. 
B) generally require that firms use equity finance rather than debt finance. 
C) put restrictions on the use of borrowed funds. 
D) were outlawed under the Civil Rights Act of 1964. 
A) generally require that firms use debt finance rather than equity finance. 
B) generally require that firms use equity finance rather than debt finance. 
C) put restrictions on the use of borrowed funds. 
D) were outlawed under the Civil Rights Act of 1964.

Question 15

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 16

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 17

Lenders prefer to lend to firms with high net worth because

Accepted Answer

A) such firms are usually willing to pay higher interest rates. 
B) the owners of such firms have more to lose if the firm defaults on a loan. 
C) the government requires most bank loans to be made to such firms. 
D) such firms usually are unable to raise funds directly through financial markets. 
A) such firms are usually willing to pay higher interest rates. 
B) the owners of such firms have more to lose if the firm defaults on a loan. 
C) the government requires most bank loans to be made to such firms. 
D) such firms usually are unable to raise funds directly through financial markets.

Question 18

Financial intermediaries emerged

Accepted Answer

A) to make loans to governments. 
B) to provide a market for municipal bonds. 
C) to reduce transactions costs for small savers and borrowers. 
D) to reduce transactions costs for traders in stocks and bonds. 
A) to make loans to governments. 
B) to provide a market for municipal bonds. 
C) to reduce transactions costs for small savers and borrowers. 
D) to reduce transactions costs for traders in stocks and bonds.

Question 19

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 20

You own a 2007 Ford Explorer. Although it has high mileage, you have maintained it very well. You want to sell it, but after checking the prices other owners of 2007 Ford Explorers are able to get for their cars in the used car market, you decide the prices are too low and you decide not to sell. This is an example of

Accepted Answer

A) the "lemons problem." 
B) moral hazard. 
C) economies of scale. 
D) low information costs. 
A) the "lemons problem." 
B) moral hazard. 
C) economies of scale. 
D) low information costs.

In effect, banks are able to charge

Which of the following is the most likely result of financial intermediaries?

Which of the following concerns were raised as a result of record low interest rates in 2012?

Which of the following agencies has established standardized accounting principles for reporting corporate earnings?

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

Small investors face

Smaller firms tend to rely on financial intermediaries instead of financial markets for external financing due to

How can restrictive covenants help to reduce moral hazard in bond markets?

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

Symmetric information

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

Moral hazard problems arise when

How are financial intermediaries able to reduce transactions costs?

Restrictive covenants

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

Banks require collateral for loans in order to

Lenders prefer to lend to firms with high net worth because

Financial intermediaries emerged

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

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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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

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Exam 9: Transactions Costs, Asymmetric Information, and the Structure of the Financial System

In effect, banks are able to charge

Which of the following is the most likely result of financial intermediaries?

Which of the following concerns were raised as a result of record low interest rates in 2012?

Which of the following agencies has established standardized accounting principles for reporting corporate earnings?

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

Small investors face

Smaller firms tend to rely on financial intermediaries instead of financial markets for external financing due to

How can restrictive covenants help to reduce moral hazard in bond markets?

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

Symmetric information

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

Moral hazard problems arise when

How are financial intermediaries able to reduce transactions costs?

Restrictive covenants

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

Banks require collateral for loans in order to

Lenders prefer to lend to firms with high net worth because

Financial intermediaries emerged

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

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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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