ECON 343 TEST 3 QUESTIONS
COMPLETE WITH 100% VERIFIED
ANSWERS
\.American businesses get their external funds primarily from? - ANSWERS✔-loans
from nonbank financial intermediaries
\.Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds. - ANSWERS✔-households
\.Of the sources of external funds for nonfinancial businesses in the United States,
stocks account for approximately ________ of the total. - ANSWERS✔-11%
\.By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower - ANSWERS✔-transactions
costs.
\.Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions. - ANSWERS✔-
liquidity
\.Financial intermediaries develop ________ in things such as computer
technology which allows them to lower transactions costs. - ANSWERS✔-expertise
,\.One purpose of regulation of financial markets is to - ANSWERS✔-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? - ANSWERS✔-Stocks are the most important source of finance for
American businesses.
\.The predominant form of household debt is - ANSWERS✔-collateralized debt.
\.A clause in a mortgage loan contract requiring the borrower to purchase
homeowner's 10) insurance is an example of a - ANSWERS✔-restrictive covenant.
\.Collateralized debt is also known as - ANSWERS✔-secured debt.
\.Which of the following statements concerning external sources of financing for
non financial businesses in the United States are true? - ANSWERS✔-Stocks and
bonds, combined, supply less than one-half of the external funds.
\.If bad credit risks are the ones who most actively seek loans then financial
intermediaries face the problem of - ANSWERS✔-adverse selection
\.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. - ANSWERS✔-moral hazard
, \.The presence of ________ in financial markets leads to adverse selection and
moral hazard problems that interfere with the efficient functioning of financial
markets. - ANSWERS✔-asymmetric information
\.Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds
- ANSWERS✔-from bank loans.
\.The "lemons problem" exists because of - ANSWERS✔-asymmetric information.
\.The ________ problem helps to explain why the private production and sale of
information cannot eliminate ________. - ANSWERS✔-free-rider; adverse
selection
\.The problem faced by the lender that the borrower may take on additional risk
after receiving the loan is called - ANSWERS✔-moral hazard.
\.Adverse selection is a problem associated with equity and debt contracts arising
from - ANSWERS✔-the lender's relative lack of information about the borrower's
potential returns and risks
of his investment activities.
\.Government regulations require publicly traded firms to provide information,
reducing - ANSWERS✔-the adverse selection problem.
COMPLETE WITH 100% VERIFIED
ANSWERS
\.American businesses get their external funds primarily from? - ANSWERS✔-loans
from nonbank financial intermediaries
\.Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds. - ANSWERS✔-households
\.Of the sources of external funds for nonfinancial businesses in the United States,
stocks account for approximately ________ of the total. - ANSWERS✔-11%
\.By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower - ANSWERS✔-transactions
costs.
\.Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions. - ANSWERS✔-
liquidity
\.Financial intermediaries develop ________ in things such as computer
technology which allows them to lower transactions costs. - ANSWERS✔-expertise
,\.One purpose of regulation of financial markets is to - ANSWERS✔-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? - ANSWERS✔-Stocks are the most important source of finance for
American businesses.
\.The predominant form of household debt is - ANSWERS✔-collateralized debt.
\.A clause in a mortgage loan contract requiring the borrower to purchase
homeowner's 10) insurance is an example of a - ANSWERS✔-restrictive covenant.
\.Collateralized debt is also known as - ANSWERS✔-secured debt.
\.Which of the following statements concerning external sources of financing for
non financial businesses in the United States are true? - ANSWERS✔-Stocks and
bonds, combined, supply less than one-half of the external funds.
\.If bad credit risks are the ones who most actively seek loans then financial
intermediaries face the problem of - ANSWERS✔-adverse selection
\.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. - ANSWERS✔-moral hazard
, \.The presence of ________ in financial markets leads to adverse selection and
moral hazard problems that interfere with the efficient functioning of financial
markets. - ANSWERS✔-asymmetric information
\.Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds
- ANSWERS✔-from bank loans.
\.The "lemons problem" exists because of - ANSWERS✔-asymmetric information.
\.The ________ problem helps to explain why the private production and sale of
information cannot eliminate ________. - ANSWERS✔-free-rider; adverse
selection
\.The problem faced by the lender that the borrower may take on additional risk
after receiving the loan is called - ANSWERS✔-moral hazard.
\.Adverse selection is a problem associated with equity and debt contracts arising
from - ANSWERS✔-the lender's relative lack of information about the borrower's
potential returns and risks
of his investment activities.
\.Government regulations require publicly traded firms to provide information,
reducing - ANSWERS✔-the adverse selection problem.
