Quiz_3_Detailed_Answers_Fall_2010_FIN_353_Version_A[1]

Quiz_3_Detailed_Answ - FIN 353 Quiz 3 Version A Student 1 Assuming a person cannot identify the quality of the used cars offered for sale They know

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FIN 353 Quiz 3, Version A Student: ___________________________________________________________________________ 1. Assuming a person cannot identify the quality of the used cars offered for sale. They know the low quality car should cost $10,000 and the high quality should cost $16,000. What is the price they will offer and the end result? A. $16,000, only good quality cars are sold. B. $10,000, only bad quality cars are sold. C. $13,000, only good quality cars are sold. D. $13,000 only bad quality cars are sold. 2. An investment bank buys a 2 year Treasury bond for $1,000. They strip out the coupon payments and principal and sell it to investors. Assuming a coupon rate of 10% and a discount rate of 8%, what is the market value of the strips? A. $1,000. B. $1,026. C. $1,036. D. $1,046. 3. The principal-agent problem is A. when agents have more information about their activities than do the principals. B. an adverse selection problem. C. a moral hazard problem. D. A and B. E. A and C. 4. Which problem does venture capital firms help prevent. A. adverse selection. B. principal-agent problem. C. moral hazard. D. B and C. E. All of the above. 5. Most financial crises in the United States have ended with A. a steep stock market decline. B. deflation. C. government fiscal imbalances. D. A and B. 6. When $1 million is deposited at a bank, the required reserve ratio is 10 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 $900,000. B. the loans of the bank increase by $900,000 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 14 percent, and $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is? A. $25,000. B. $30,000. C. $20,000. D. $10,000. 8. Banks can protect themselves from the disruption caused by deposit outflows by? A. holding excess reserves. B. borrowing from the Fed C. buying securities. D. all of the above. E. A and B. 9. In general, banks would prefer to meet deposit outflows by _________ rather than _________ A. calling in loans, selling securities. B. selling loans, borrowing from the Fed. C. selling loans, selling securities. D. borrowing from the Fed, selling loans. 10. A bank has 100 million dollars in deposits and 15 million dollars in reserves. The required reserve ratio is 10%. There is a deposit outflow of 10 million. What is the shortfall in reserves? A. 4 million. B. 5 million. C. 6 million. D. 7 million. 11. The most important source of the changes in supply conditions that stimulate financial innovation has been? A. improvement in information technology.
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This note was uploaded on 09/20/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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Quiz_3_Detailed_Answ - FIN 353 Quiz 3 Version A Student 1 Assuming a person cannot identify the quality of the used cars offered for sale They know

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