Summer_2010_FIN_353_Quiz_3_Sample_Exam[1]

Summer_2010_FIN_353_Quiz_3_Sample_Exam[1] - FIN 353 Sample...

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FIN 353 Sample Quiz 3 Student: ___________________________________________________________________________ 1. Because of the lemons problem in the used car market, the average quality of the used cars offered for sale will be _________, which gives rise to the problem of A. high, adverse selection. B. low, adverse selection. C. high, moral hazard. D. low, moral hazard. 2. Because of moral hazard A. lenders will more readily lend to borrowers with high net worth. B. lenders will write debt contracts that restrict certain activities of borrowers. C. debt contracts are used less frequently to raise capital than are equity contracts. D. All of the above. E. A and B. 3. The principal-agent problem A. would not arise if the owners of the firm had complete information about the activities of the managers. B. in financial markets helps to explain why equity is a relatively important source of finance for American business. C. occurs when managers have more incentive to maximize profits than the stockholders-owners do. D. All of the above. 4. One financial intermediary in our financial structure that helps to reduce the moral hazard arising from the principal-agent problem is the ? A. pawn broker. B. savings and loan. C. venture capital. D. money market fund. 5. Most financial crises in the United States have begun with A. a steep stock market decline. B. an increase in uncertainty resulting from the failure of a major firm. C. a decline in interest rates. D. A and B. 6. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet? A. the liabilities of the bank increase by $200,000. B. the assets of the bank increase by $200,000 C. reserves increase by $200,000 D. All of the above.
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7. If a bank has $100,000 of deposits, a required reserve ratio of 20 percent, and $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is? A. $25,000.
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This note was uploaded on 09/07/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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Summer_2010_FIN_353_Quiz_3_Sample_Exam[1] - FIN 353 Sample...

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