Econ 343 Test Three Review With
Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions.
A) conduction
B) equitable
C) liquidity
D) transcendental - ANSWER C) liquidity
The analysis of how asymmetric information problems affect economic behavior
is called ________.
A) parallel
B) principal
C) agency
D) uneven - ANSWER C) agency
An example of the ________ problem would be if Brian borrowed money from
Sean in order to purchase a used car and instead took a trip to Atlantic City
using those funds.
A) adverse selection
B) moral hazard
C) costly state verification
D) agency - ANSWER B) moral hazard
High net worth helps to diminish the problem of moral hazard by
A) requiring the state to verify the debt contract
B) collateralizing the debt contract
C) giving the debt contract characteristics of equity contracts
D) making the debt contract incentive compatible - ANSWER D) making the debt
contract incentive compatible
Because of the weak systems of property rights in many developing and
transition economies, the financial system is unable to use collateral effectively
worsening the ________ problem.
A) moral hazard
B) diversification
C) principal/agent
D) adverse selection - ANSWER D) adverse selection
,In developing countries, it can be expensive and time-consuming for the poor to
legalize their property ownership. Without legal title, the property cannot be
used as ________ to borrow funds.
A) points
B) restrictive covenants
C) collateral
D) interest - ANSWER C) collateral
Which of the following is NOT one of the eight basic puzzles about financial
structure?
A) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
B) Debt contracts are typically extremely complicated legal documents that
place substantial restrictions on the behavior of the borrower.
C) There is very little regulation of the financial system.
D) Collateral is a prevalent feature of debt contracts for both households and
business. - ANSWER C) There is very little regulation of the financial system
The current structure of financial markets can be best understood as the result
of attempts by financial market participants to
A) reduce transaction costs
B) cartelize the provision of financial services
C) deal with the great number of small firms in the United States
D) adapt to continually changing government regulations - ANSWER A) reduce
transaction costs
Of the four sources of external funding for nonfinancial business, the least often
used in the U.S. is
A) bank loans
B) nonbank loans
C) stock
D) bonds - ANSWER C) stock
American businesses get their external funds primarily from
A) bank loans
B) stock issues
C) bonds and commercial paper issues
D) loans from nonbank financial intermediaries - ANSWER D) loans from
nonbank financial intermediaries
Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds.
A) households
B) pension funds
C) insurance companies
, D) financial intermediaries - ANSWER A) households
By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) moral hazard
B) diversification
C) adverse selection
D) transaction costs - ANSWER D) transaction costs
Financial intermediaries develop ________ in things such as computer
technology which allows them to lower transaction costs.
A) equity
B) regulations
C) expertise
D) diversification - ANSWER C) expertise
One purpose of regulation of financial markets is to
A) guarantee that the maximum rates of interest are paid on deposits.
B) limit the profits of financial institutions.
C) promote the provision of information to shareholders, depositors and the
public.
D) increase competition among financial institutions. - ANSWER C) promote the
provision of information to shareholders, depositors and the public
Which of the following is not one of the eight basic puzzles about financial
structure?
A) Issuing marketable securities is not the primary way businesses finance their
operations.
B) Banks are the most important source of external funds to finance businesses.
C) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
D) Stocks are the most important source of finance for American businesses. -
ANSWER D) Stocks are the most important source of finance for American
businesses
A clause in a mortgage loan contract requiring the borrower to purchase
homeowner's insurance is an example of a
A) restrictive covenant
B) prescriptive covenant
C) proscriptive covenant
D) constraint-imposed covenant - ANSWER A) restrictive covenant
Collateralized debt is also known as
A) promissory debt
B) unrestricted debt
Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions.
A) conduction
B) equitable
C) liquidity
D) transcendental - ANSWER C) liquidity
The analysis of how asymmetric information problems affect economic behavior
is called ________.
A) parallel
B) principal
C) agency
D) uneven - ANSWER C) agency
An example of the ________ problem would be if Brian borrowed money from
Sean in order to purchase a used car and instead took a trip to Atlantic City
using those funds.
A) adverse selection
B) moral hazard
C) costly state verification
D) agency - ANSWER B) moral hazard
High net worth helps to diminish the problem of moral hazard by
A) requiring the state to verify the debt contract
B) collateralizing the debt contract
C) giving the debt contract characteristics of equity contracts
D) making the debt contract incentive compatible - ANSWER D) making the debt
contract incentive compatible
Because of the weak systems of property rights in many developing and
transition economies, the financial system is unable to use collateral effectively
worsening the ________ problem.
A) moral hazard
B) diversification
C) principal/agent
D) adverse selection - ANSWER D) adverse selection
,In developing countries, it can be expensive and time-consuming for the poor to
legalize their property ownership. Without legal title, the property cannot be
used as ________ to borrow funds.
A) points
B) restrictive covenants
C) collateral
D) interest - ANSWER C) collateral
Which of the following is NOT one of the eight basic puzzles about financial
structure?
A) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
B) Debt contracts are typically extremely complicated legal documents that
place substantial restrictions on the behavior of the borrower.
C) There is very little regulation of the financial system.
D) Collateral is a prevalent feature of debt contracts for both households and
business. - ANSWER C) There is very little regulation of the financial system
The current structure of financial markets can be best understood as the result
of attempts by financial market participants to
A) reduce transaction costs
B) cartelize the provision of financial services
C) deal with the great number of small firms in the United States
D) adapt to continually changing government regulations - ANSWER A) reduce
transaction costs
Of the four sources of external funding for nonfinancial business, the least often
used in the U.S. is
A) bank loans
B) nonbank loans
C) stock
D) bonds - ANSWER C) stock
American businesses get their external funds primarily from
A) bank loans
B) stock issues
C) bonds and commercial paper issues
D) loans from nonbank financial intermediaries - ANSWER D) loans from
nonbank financial intermediaries
Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds.
A) households
B) pension funds
C) insurance companies
, D) financial intermediaries - ANSWER A) households
By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) moral hazard
B) diversification
C) adverse selection
D) transaction costs - ANSWER D) transaction costs
Financial intermediaries develop ________ in things such as computer
technology which allows them to lower transaction costs.
A) equity
B) regulations
C) expertise
D) diversification - ANSWER C) expertise
One purpose of regulation of financial markets is to
A) guarantee that the maximum rates of interest are paid on deposits.
B) limit the profits of financial institutions.
C) promote the provision of information to shareholders, depositors and the
public.
D) increase competition among financial institutions. - ANSWER C) promote the
provision of information to shareholders, depositors and the public
Which of the following is not one of the eight basic puzzles about financial
structure?
A) Issuing marketable securities is not the primary way businesses finance their
operations.
B) Banks are the most important source of external funds to finance businesses.
C) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
D) Stocks are the most important source of finance for American businesses. -
ANSWER D) Stocks are the most important source of finance for American
businesses
A clause in a mortgage loan contract requiring the borrower to purchase
homeowner's insurance is an example of a
A) restrictive covenant
B) prescriptive covenant
C) proscriptive covenant
D) constraint-imposed covenant - ANSWER A) restrictive covenant
Collateralized debt is also known as
A) promissory debt
B) unrestricted debt
