Question 1

The free-rider problem faced by private information-collection firms results in their

Accepted Answer

A) usually going out of business within a few years. 
B) collecting less than all the available information about the firms they investigate. 
C) being plagued by lawsuits. 
D) charging fees higher than can be justified by market conditions. 
A) usually going out of business within a few years. 
B) collecting less than all the available information about the firms they investigate. 
C) being plagued by lawsuits. 
D) charging fees higher than can be justified by market conditions.

Question 2

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 3

In the late 2000s, 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

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 intermediari

Question 5

A part of the Jumpstart Our Business Startups (JOBS)Act:

Accepted Answer

A) banks were required to provide special financing for start ups 
B) differences between qualified and unaccredited investors were removed 
C) the SEC is no longer is allowed to regulate funding of business start ups 
D) Congress removed some of the restrictions on using crowd-funding to allow small investors to buy equity in start-ups 
A) banks were required to provide special financing for start ups 
B) differences between qualified and unaccredited investors were removed 
C) the SEC is no longer is allowed to regulate funding of business start ups 
D) Congress removed some of the restrictions on using crowd-funding to allow small investors to buy equity in start-ups

Question 6

Moral hazard arises from

Accepted Answer

A) the difficulty of distinguishing good-risk borrowers from bad-risk borrowers. 
B) the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers. 
C) savers' difficulties in monitoring borrowers. 
D) borrowers' difficulties in locating savers. 
A) the difficulty of distinguishing good-risk borrowers from bad-risk borrowers. 
B) the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers. 
C) savers' difficulties in monitoring borrowers. 
D) borrowers' difficulties in locating savers.

Question 7

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 8

Financial intermediaries reduce transactions costs by

Accepted Answer

A) charging fees to small savers. 
B) charging fees to small investors. 
C) taking advantage of economies of scale. 
D) avoiding risky investments. 
A) charging fees to small savers. 
B) charging fees to small investors. 
C) taking advantage of economies of scale. 
D) avoiding risky investments.

Question 9

How is the lemons problem in the used car market an example of asymmetric information?

Accepted Answer

The seller of a used car has m

Question 10

The "lemons problem" exists in the market for goods because

Accepted Answer

A) sellers tend to try to take advantage of buyers. 
B) buyers tend to try to take advantage of sellers. 
C) differences in the quality of the goods being exchanged. 
D) of moral hazard. 
A) sellers tend to try to take advantage of buyers. 
B) buyers tend to try to take advantage of sellers. 
C) differences in the quality of the goods being exchanged. 
D) of moral hazard.

Question 11

Why do higher interest rates increase adverse selection problems in the loan market?

Accepted Answer

A) Higher interest rates reduce the gains from economies of scale. 
B) As interest rates rise, the creditworthiness of the average loan applicant declines. 
C) Higher interest rates reduce information problems in the loan market. 
D) At higher interest rates fewer investment projects are profitable. 
A) Higher interest rates reduce the gains from economies of scale. 
B) As interest rates rise, the creditworthiness of the average loan applicant declines. 
C) Higher interest rates reduce information problems in the loan market. 
D) At higher interest rates fewer investment projects are profitable.

Question 12

With regard to crowd funding, all of the following accurately describe "qualified investors" EXCEPT:

Accepted Answer

A) they must have incomes of at least $200,000 per year 
B) there are no longer any distinctions between investors following the passage of the JOBS act 
C) they must have assets of at least $1 million not including the value of their house 
D) they must make up a majority of investors in each start up 
A) they must have incomes of at least $200,000 per year 
B) there are no longer any distinctions between investors following the passage of the JOBS act 
C) they must have assets of at least $1 million not including the value of their house 
D) they must make up a majority of investors in each start up

Question 13

How does adverse selection affect the willingness of corporations to issue stock?

Accepted Answer

Since adverse selection reduce

Question 14

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 15

Which of the following is NOT a company that collects information on individual borrowers and sells it to savers?

Accepted Answer

A) Moody's Investor Service 
B) Value Line 
C) NASDAQ 
D) Dun and Bradstreet 
A) Moody's Investor Service 
B) Value Line 
C) NASDAQ 
D) Dun and Bradstreet

Question 16

Moody's Investors Service is able to make a profit because

Accepted Answer

A) most investors are irrational. 
B) of the existence of adverse selection problems. 
C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge. 
D) small investors like the mutual funds they sell. 
A) most investors are irrational. 
B) of the existence of adverse selection problems. 
C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge. 
D) small investors like the mutual funds they sell.

Question 17

The assumption of asymmetric information means that

Accepted Answer

A) borrowers and lenders have the same information. 
B) borrowers and lenders have perfect information. 
C) borrowers know more than lenders. 
D) lenders know more than borrowers. 
A) borrowers and lenders have the same information. 
B) borrowers and lenders have perfect information. 
C) borrowers know more than lenders. 
D) lenders know more than borrowers.

Question 18

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

Accepted Answer

Investors often reason that as interest

Question 19

How does the principal-agent problem increase the possibility of moral hazard?

Accepted Answer

The shareholders, as owners of the firm,

Question 20

Government regulations requiring firms that desire to sell securities in financial markets to disclose all available information

Accepted Answer

A) eliminate the adverse selection problem (when rigorously enforced). 
B) increase the difficulty that young firms may have in raising funds. 
C) eliminate the moral hazard problem in securities markets. 
D) fail to eliminate the adverse selection problem, in part because they do not greatly reduce the difficulty that young firms have in raising funds. 
A) eliminate the adverse selection problem (when rigorously enforced). 
B) increase the difficulty that young firms may have in raising funds. 
C) eliminate the moral hazard problem in securities markets. 
D) fail to eliminate the adverse selection problem, in part because they do not greatly reduce the difficulty that young firms have in raising funds.

The free-rider problem faced by private information-collection firms results in their

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

In the late 2000s, which source of funds for corporations grew the most?

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

A part of the Jumpstart Our Business Startups (JOBS)Act:

Moral hazard arises from

The presence of transactions costs and information costs

Financial intermediaries reduce transactions costs by

How is the lemons problem in the used car market an example of asymmetric information?

The "lemons problem" exists in the market for goods because

Why do higher interest rates increase adverse selection problems in the loan market?

With regard to crowd funding, all of the following accurately describe "qualified investors" EXCEPT:

How does adverse selection affect the willingness of corporations to issue stock?

Credit rationing refers to

Which of the following is NOT a company that collects information on individual borrowers and sells it to savers?

Moody's Investors Service is able to make a profit because

The assumption of asymmetric information means that

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

How does the principal-agent problem increase the possibility of moral hazard?

Government regulations requiring firms that desire to sell securities in financial markets to disclose all available information

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

The free-rider problem faced by private information-collection firms results in their

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

In the late 2000s, which source of funds for corporations grew the most?

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

A part of the Jumpstart Our Business Startups (JOBS)Act:

Moral hazard arises from

The presence of transactions costs and information costs

Financial intermediaries reduce transactions costs by

How is the lemons problem in the used car market an example of asymmetric information?

The "lemons problem" exists in the market for goods because

Why do higher interest rates increase adverse selection problems in the loan market?

With regard to crowd funding, all of the following accurately describe "qualified investors" EXCEPT:

How does adverse selection affect the willingness of corporations to issue stock?

Credit rationing refers to

Which of the following is NOT a company that collects information on individual borrowers and sells it to savers?

Moody's Investors Service is able to make a profit because

The assumption of asymmetric information means that

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

How does the principal-agent problem increase the possibility of moral hazard?

Government regulations requiring firms that desire to sell securities in financial markets to disclose all available information

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