Question 1

One reason China has been able to grow so rapidly even though its financial development is still in its early stages is

Accepted Answer

A) the high savings rate of around 40%. 
B) the shift of labor to the agricultural sector. 
C) the stringent enforcement of financial contracts. 
D) the ease of obtaining high-quality information about creditors. 
A) the high savings rate of around 40%. 
B) the shift of labor to the agricultural sector. 
C) the stringent enforcement of financial contracts. 
D) the ease of obtaining high-quality information about creditors.

Question 2

A debt contract is incentive compatible

Accepted Answer

A) if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business. 
B) if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced. 
C) if the debt contract is treated like an equity. 
D) if the lender has the incentive to behave in the way that the borrower expects and desires. 
A) if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business. 
B) if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced. 
C) if the debt contract is treated like an equity. 
D) if the lender has the incentive to behave in the way that the borrower expects and desires.

Question 3

Credit card debt is

Accepted Answer

A) secured debt. 
B) unsecured debt. 
C) restricted debt. 
D) unrestricted debt. 
A) secured debt. 
B) unsecured debt. 
C) restricted debt. 
D) unrestricted debt.

Question 4

Commercial and farm mortgages,in which property is pledged as collateral,account for

Accepted Answer

A) one-quarter of borrowing by nonfinancial businesses. 
B) one-half of borrowing by nonfinancial businesses. 
C) one-twentieth of borrowing by nonfinancial businesses. 
D) two-thirds of borrowing by nonfinancial businesses. 
A) one-quarter of borrowing by nonfinancial businesses. 
B) one-half of borrowing by nonfinancial businesses. 
C) one-twentieth of borrowing by nonfinancial businesses. 
D) two-thirds of borrowing by nonfinancial businesses.

Question 5

Of the sources of external funds for nonfinancial businesses in the United States,stocks account for approximately ________ of the total.

Accepted Answer

A) 2% 
B) 11% 
C) 20% 
D) 40% 
A) 2% 
B) 11% 
C) 20% 
D) 40%

Question 6

Net worth can perform a similar role to ________.

Accepted Answer

A) diversification 
B) collateral 
C) intermediation 
D) economies of scale 
A) diversification 
B) collateral 
C) intermediation 
D) economies of scale

Question 7

Investment banks ________ companies issuing securities and ________ these securities by selling them to the public on behalf of the issuing companies.

Accepted Answer

A) research; underwrite 
B) research; monitor 
C) monitor; underwrite 
D) monitor; manipulate 
A) research; underwrite 
B) research; monitor 
C) monitor; underwrite 
D) monitor; manipulate

Question 8

A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.

Accepted Answer

A) residual claimant 
B) risk hedge 
C) restrictive barrier 
D) restrictive covenant 
A) residual claimant 
B) risk hedge 
C) restrictive barrier 
D) restrictive covenant

Question 9

The current structure of financial markets can be best understood as the result of attempts by financial market participants to

Accepted Answer

A) adapt to continually changing government regulations. 
B) deal with the great number of small firms in the United States. 
C) reduce transaction costs. 
D) cartelize the provision of financial services. 
A) adapt to continually changing government regulations. 
B) deal with the great number of small firms in the United States. 
C) reduce transaction costs. 
D) cartelize the provision of financial services.

Question 10

The recent Enron and Tyco scandals are an example of

Accepted Answer

A) the free-rider problem. 
B) the adverse selection problem. 
C) the principal-agent problem. 
D) the "lemons problem." 
A) the free-rider problem. 
B) the adverse selection problem. 
C) the principal-agent problem. 
D) the "lemons problem."

Question 11

The presence of economies of scope may benefit financial institutions but may create potential costs from ________.

Accepted Answer

A) conflicts of interest 
B) multiple profitable enterprises 
C) economies of scale 
D) unsecured debt 
A) conflicts of interest 
B) multiple profitable enterprises 
C) economies of scale 
D) unsecured debt

Question 12

All of the following are credit-rating agency reforms proposed by the SEC in 2008 except

Accepted Answer

A) prohibit credit-rating agencies from structuring the same products that they rate. 
B) disclose historical ratings performance. 
C) differentiate the ratings on structured products from those issued on bonds. 
D) sever links between research and securities underwriting. 
A) prohibit credit-rating agencies from structuring the same products that they rate. 
B) disclose historical ratings performance. 
C) differentiate the ratings on structured products from those issued on bonds. 
D) sever links between research and securities underwriting.

Question 13

Because of the "lemons problem" the price a buyer of a used car pays is

Accepted Answer

A) equal to the price of a lemon. 
B) less than the price of a lemon. 
C) equal to the price of a peach. 
D) between the price of a lemon and a peach. 
A) equal to the price of a lemon. 
B) less than the price of a lemon. 
C) equal to the price of a peach. 
D) between the price of a lemon and a peach.

Question 14

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

Accepted Answer

A) limited-liability clauses. 
B) risk insurance. 
C) restrictive covenants. 
D) illegal. 
A) limited-liability clauses. 
B) risk insurance. 
C) restrictive covenants. 
D) illegal.

Question 15

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

Accepted Answer

A) increase somewhat 
B) decrease 
C) stay the same 
D) increase significantly 
A) increase somewhat 
B) decrease 
C) stay the same 
D) increase significantly

Question 16

The name economists give the process by which stockholders gather information by frequent monitoring of the firm's activities is

Accepted Answer

A) costly state verification. 
B) the free-rider problem. 
C) costly avoidance. 
D) debt intermediation. 
A) costly state verification. 
B) the free-rider problem. 
C) costly avoidance. 
D) debt intermediation.

Question 17

Collateralized debt is also know as

Accepted Answer

A) unsecured debt. 
B) secured debt. 
C) unrestricted debt. 
D) promissory debt. 
A) unsecured debt. 
B) secured debt. 
C) unrestricted debt. 
D) promissory debt.

Question 18

That only large,well-established corporations have access to securities markets

Accepted Answer

A) explains why indirect finance is such an important source of external funds for businesses. 
B) can be explained by the problem of moral hazard. 
C) can be explained by government regulations that prohibit small firms from acquiring funds in securities markets. 
D) explains why newer and smaller corporations rely so heavily on the new issues market for funds. 
A) explains why indirect finance is such an important source of external funds for businesses. 
B) can be explained by the problem of moral hazard. 
C) can be explained by government regulations that prohibit small firms from acquiring funds in securities markets. 
D) explains why newer and smaller corporations rely so heavily on the new issues market for funds.

Question 19

With regard to external sources of financing for nonfinancial businesses in the United States,which of the following are accurate statements?

Accepted Answer

A) Marketable securities account for a larger share of external business financing in the United States than in Germany and Japan. 
B) Since 1970,most of the newly issued corporate bonds and commercial paper have been sold directly to American households. 
C) Direct finance accounts for more than 50 percent of the external financing of American businesses. 
D) Smaller businesses almost always raise funds by issuing marketable securities. 
A) Marketable securities account for a larger share of external business financing in the United States than in Germany and Japan. 
B) Since 1970,most of the newly issued corporate bonds and commercial paper have been sold directly to American households. 
C) Direct finance accounts for more than 50 percent of the external financing of American businesses. 
D) Smaller businesses almost always raise funds by issuing marketable securities.

Question 20

The problem of adverse selection helps to explain

Accepted Answer

A) why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from securities markets. 
B) why collateral is an important feature of consumer,but not business,debt contracts. 
C) why direct finance is more important than indirect finance as a source of business finance. 
D) why lenders refuse loans to individuals with high net worth. 
A) why firms are more likely to obtain funds from banks and other financial intermediaries,rather than from securities markets. 
B) why collateral is an important feature of consumer,but not business,debt contracts. 
C) why direct finance is more important than indirect finance as a source of business finance. 
D) why lenders refuse loans to individuals with high net worth.

Exam 8: An Economic Analysis of Financial Structure

One reason China has been able to grow so rapidly even though its financial development is still in its early stages is

A debt contract is incentive compatible

Credit card debt is

Commercial and farm mortgages,in which property is pledged as collateral,account for

Of the sources of external funds for nonfinancial businesses in the United States,stocks account for approximately ________ of the total.

Net worth can perform a similar role to ________.

Investment banks ________ companies issuing securities and ________ these securities by selling them to the public on behalf of the issuing companies.

A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.

The current structure of financial markets can be best understood as the result of attempts by financial market participants to

The recent Enron and Tyco scandals are an example of

The presence of economies of scope may benefit financial institutions but may create potential costs from ________.

All of the following are credit-rating agency reforms proposed by the SEC in 2008 except

Because of the "lemons problem" the price a buyer of a used car pays is

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

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

The name economists give the process by which stockholders gather information by frequent monitoring of the firm's activities is

Collateralized debt is also know as

That only large,well-established corporations have access to securities markets

With regard to external sources of financing for nonfinancial businesses in the United States,which of the following are accurate statements?

The problem of adverse selection helps to explain

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

Investment banks companies issuing securities and these securities by selling them to the public on behalf of the issuing companies.