Test Bank for The Economics Of Money Banking And
Financial Markets 13th Global Edition Frederic
Mishkin
Convertible bonds? - answer-Allowing the holder to convert them into a specified
number of shares of stock at any time up to the maturity date.
If there were no asymmetry in the information that a
p stabilize the financial system? - answer-Raising the insurance limit would reassure
depositors that their money was safe in banks and prevent a bank panic, helping to
stabilize the financial system
Mortgages? - answer-Mortgages are loans to households or firms to purchase land,
housing, or other real structures, in which the structure or land itself serves as collateral
for the loans.
The mortgage market is the largest debt market in the United States
Structure of financial markets? - answer--Debt & Equity markets
-Primary & Secondary markets
-Exchanges & over-the-counter markets
-Money & Capital markets
.
Describe Treasury bills? - answer-Treasury bills are short-term debt instruments issued
by the United States government to cover
immediate spending obligations, i.e. finance deficit spending.
Describe Certificates of deposit? - answer-A certificate issued by a bank to a person
depositing money for a specified length of time.
Describe Commercial paper? - answer-Commercial paper is issued by corporations and
large banks as a method of short-term funding in debt markets
Describe Repurchase agreement? - answer-Repos are issued primarily by banks, and
funded by corporations and other banks through loans in which treasury bills serve as
, collateral, with an explicit agreement to pay off the debt (repurchase the treasuries) in
theborrower and a lender had, could a moral hazard problem still exist? - answer-Yes,
because even if you know that a borrower is taking actions that might jeopardize paying
off the loan, you must still stop the borrower from doing so. Because that may be costly,
you may not spend the time and effort to reduce moral hazard, and so the problem of
moral hazard still exists.
"In a world without information costs and transaction costs, financial intermediaries
would not exist." Is this statement true, false, or uncertain? Explain your answer. -
answer-True. If there are no informational or transactions costs, people could make
loans to each other at no cost and would thus have no need for financial intermediaries.
Why might you be willing to make a loan to your neighbor by putting funds in a savings
account earning a 5% interest rate at the bank and having the bank lend her the funds
at a 10% interest rate, rather than lend her the funds yourself? - answer-Because the
costs of making the loan to your neighbor are high.
In addition, you are likely to bear less risk by depositing your savings at the bank rather
than lending them to your neighbor.
How do conflicts of interest make the asymmetric
information problem worse? - answer-False information as a result of a conflict of
interest can lead to a more inefficient allocation of capital than just asymmetric
information alone.
How can the provision of several types of financial services by one firm be both
beneficial and problematic? - answer-Financial firms that provide multiple types of
financial services can be more efficient through economies of scope, that is, by lowering
the cost of information production.
However, this can be problematic since it can also lead to conflicts of interest, in which
the financial firm provides false or misleading information to protect its own interests.
This can lead to a worsening of the asymmetric information problem, making financial
markets less efficient.
If you were going to get a loan to purchase a new car, which financial intermediary
would you use: a credit union, a pension fund, or an investment bank? - answer-Credit
Union: Their primary business is consumer loans.
Why would a life insurance company be concerned about the financial stability of major
corporations or the health of the housing market? - answer-Because, they hold large
amounts of corporate bonds and mortgage assets.
Poor corporate profits or a downturn in the housing market can significantly adversely
impact the value of asset holdings of insurance companies.
Financial Markets 13th Global Edition Frederic
Mishkin
Convertible bonds? - answer-Allowing the holder to convert them into a specified
number of shares of stock at any time up to the maturity date.
If there were no asymmetry in the information that a
p stabilize the financial system? - answer-Raising the insurance limit would reassure
depositors that their money was safe in banks and prevent a bank panic, helping to
stabilize the financial system
Mortgages? - answer-Mortgages are loans to households or firms to purchase land,
housing, or other real structures, in which the structure or land itself serves as collateral
for the loans.
The mortgage market is the largest debt market in the United States
Structure of financial markets? - answer--Debt & Equity markets
-Primary & Secondary markets
-Exchanges & over-the-counter markets
-Money & Capital markets
.
Describe Treasury bills? - answer-Treasury bills are short-term debt instruments issued
by the United States government to cover
immediate spending obligations, i.e. finance deficit spending.
Describe Certificates of deposit? - answer-A certificate issued by a bank to a person
depositing money for a specified length of time.
Describe Commercial paper? - answer-Commercial paper is issued by corporations and
large banks as a method of short-term funding in debt markets
Describe Repurchase agreement? - answer-Repos are issued primarily by banks, and
funded by corporations and other banks through loans in which treasury bills serve as
, collateral, with an explicit agreement to pay off the debt (repurchase the treasuries) in
theborrower and a lender had, could a moral hazard problem still exist? - answer-Yes,
because even if you know that a borrower is taking actions that might jeopardize paying
off the loan, you must still stop the borrower from doing so. Because that may be costly,
you may not spend the time and effort to reduce moral hazard, and so the problem of
moral hazard still exists.
"In a world without information costs and transaction costs, financial intermediaries
would not exist." Is this statement true, false, or uncertain? Explain your answer. -
answer-True. If there are no informational or transactions costs, people could make
loans to each other at no cost and would thus have no need for financial intermediaries.
Why might you be willing to make a loan to your neighbor by putting funds in a savings
account earning a 5% interest rate at the bank and having the bank lend her the funds
at a 10% interest rate, rather than lend her the funds yourself? - answer-Because the
costs of making the loan to your neighbor are high.
In addition, you are likely to bear less risk by depositing your savings at the bank rather
than lending them to your neighbor.
How do conflicts of interest make the asymmetric
information problem worse? - answer-False information as a result of a conflict of
interest can lead to a more inefficient allocation of capital than just asymmetric
information alone.
How can the provision of several types of financial services by one firm be both
beneficial and problematic? - answer-Financial firms that provide multiple types of
financial services can be more efficient through economies of scope, that is, by lowering
the cost of information production.
However, this can be problematic since it can also lead to conflicts of interest, in which
the financial firm provides false or misleading information to protect its own interests.
This can lead to a worsening of the asymmetric information problem, making financial
markets less efficient.
If you were going to get a loan to purchase a new car, which financial intermediary
would you use: a credit union, a pension fund, or an investment bank? - answer-Credit
Union: Their primary business is consumer loans.
Why would a life insurance company be concerned about the financial stability of major
corporations or the health of the housing market? - answer-Because, they hold large
amounts of corporate bonds and mortgage assets.
Poor corporate profits or a downturn in the housing market can significantly adversely
impact the value of asset holdings of insurance companies.
