ch15 - Financial Markets and Institutions 6e(Mishkin/Eakins...

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Unformatted text preview: Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 15 1 Why Do Financial Institutions Exist? 15.1 Multi ple Choi ce 1) Of the following sources of external finance for American nonfinancial businesses, the least important is A) loans from B) banks. stocks. C) bonds and D) commercial paper. nonbank loans. Answer: B Question Status: Previous Edition 2) Of the following sources of external finance for American nonfinancial businesses, the most important is A) loans from B) banks. stocks. C) bonds and D) commercial paper. nonbank loans. Answer: D Question Status: Previous Edition 3) Of the external funds for nonfinancial businesses in the United States, bonds account for approximately sources of _________ of the total. A) 10% B) 20% C) 30% D) 50% Answer: C Question Status: Previous Edition 4) Of the external funds for nonfinancial businesses in the United States, stocks account for approximately sources of _________ of the total. A) 10% B) 20% C) 30% D) 40% Answer: A Question Status: Previous Edition 5) With external sources of financing for nonfinancial businesses in the United States, which of the following are regard to accurate statements? A) Marketable securities B) account for a larger share of external business financing in the United States than in most other countries. Since 1970, less newly issued corporate bonds and commercial paper have been sold directly to American than 5% of households. C) The stock market D) accounted for the largest share of the financing of American businesses in the 1970-2000 period. All of the E) above. Only A and B of the above. Answer: E Question Status: Previous Edition 6) With external sources of financing for nonfinancial businesses in the United States, which of the following are regard to accurate statements? A) Direct finance is used in less than 5% of the external financing of American businesses. B) Only large, C) well-established corporations have access to securities markets to finance their activities. Loans from financial intermediaries in the United States provide five times more financing of corporate banks and other activities than do stock markets. D) All of the E) above. Only A and B of the above. Answer: D Question Status: Previous Edition 7) (I) In the nonbank loans are the most important source of external funds for nonfinancial businesses. (II) In United Germany and Japan, issuing stocks and bonds is the most important source of external for nonfinancial States businesses. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: A Question Status: Previous Edition 8) Which of the following is not one of the eight basic facts about financial structure? A) Debt contracts extremely complicated legal documents that place substantial restrictions on the behavior of the are typically borrower. B) Indirect finance, the activities of financial intermediaries, is many times more important than direct finance, in which involves which businesses raise funds directly from lenders in financial markets. C) Collateral is a prevalent feature of debt contracts for both households and business. D) New security issues are the most important source of external funds to finance businesses. Answer: D Question Status: Previous Edition 9) Which of the following is not one of the eight basic facts about financial structure? A) The financial B) system is among the most heavily regulated sectors of the economy. Issuing C) marketable securities is the primary way businesses finance their operations. Indirect finance, the activities of financial intermediaries, is many times more important than direct finance, in which involves which businesses raise funds directly from lenders in financial markets. D) Financial intermediaries are the most important source of external funds to finance businesses. Answer: B Question Status: Previous Edition 10) Because information is scarce, A) equity contracts are used much more frequently to raise capital than are debt contracts. B) monitoring C) managers gives rise to costly state verification. government D) regulations, such as standard accounting principles, can help reduce moral hazard. all of the above are true. E) only B and C of the above are true. Answer: E Question Status: Previous Edition 11) Which of the following best explains the recent decline in the role of financial intermediaries? A) Private B) production and sale of information Government C) regulation to increase information Improvements in information technology D) None of the above can explain the recent decline Answer: C Question Status: Previous Edition 12) (I) The of carrying out a transaction in financial markets increases proportionally with the size of the transaction. total cost (II) Financial intermediaries facilitate diversification when an investor has only a small sum to invest. A) (I) is true; (II) is false B) (I) is false; (II) is true C) Both (I) and (II) are true D) Both (I) and (II) are false Answer: B Question Status: Previous Edition 13) If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of A) moral hazard. B) adverse C) selection. free-riding. D) costly state verification. Answer: B Question Status: Previous Edition 14) If borrowers take on big risks after obtaining a loan, then lenders face the problem of A) free-riding. B) adverse C) selection. moral hazard. D) costly state verification. Answer: C Question Status: Previous Edition 15) Because lemons problem in the used car market, the average quality of the used cars offered for sale will be of the _________, which gives rise to the problem of _________. A) low; moral B) hazard low; adverse C) selection high; moral D) hazard high; adverse selection Answer: B Question Status: Previous Edition 16) In the market, asymmetric information leads to the lemons problem because the price that buyers are willing to used car pay will A) reflect the B) highest quality of used cars in the market. reflect the C) lowest quality of used cars in the market. reflect the D) average quality of used cars in the market. none of the above. Answer: C Question Status: Previous Edition 17) The created by asymmetric information before the transaction occurs is called _________, while the problem problem created after the transaction occurs is called _________ A) adverse B) selection; moral hazard. moral hazard; adverse selection. C) costly state D) verification; free-riding. free-riding; costly state verification. Answer: A Question Status: Previous Edition 18) A who takes out a loan usually has better information about the potential returns and risk of the investment borrower projects he plans to undertake than does the lender. This inequality of information is called A) moral hazard. B) asymmetric C) information. noncollateralize d risk. D) adverse selection. Answer: B Question Status: Previous Edition 19) Adverse selection is a problem associated with equity and debt contracts arising from A) the lender's information about the borrower's potential returns and risks of his investment activities. relative lack of B) the lender's C) inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. the borrower's lack of incentive to seek a loan for highly risky investments. D) none of the above. Answer: A Question Status: Previous Edition 20) Moral hazard is a problem associated with debt and equity contracts arising from A) the borrower's incentive to undertake highly risky investments. B) the owners' C) inability to ensure that managers will act in the owners' interest. the difficulty D) lenders have in sorting out good credit risks from bad credit risks. all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 21) Because of the adverse selection problem, A) lenders may B) make a disproportionate amount of loans to bad credit risks. lenders may C) refuse loans to individuals with low net worth. lenders are D) reluctant to make loans that are not secured by collateral. all of the above. Answer: D Question Status: Previous Edition 22) Because of the adverse selection problem, A) good credit likely to seek loans, causing lenders to make a disproportionate amount of loans to good credit risks are more risks. B) lenders may C) refuse loans to individuals with high net worth, because of their greater proclivity to "skip town." lenders are D) reluctant to make loans that are not secured by collateral. all of the above. Answer: C Question Status: Previous Edition 23) The problem of adverse selection helps to explain A) why banks B) prefer to make loans secured by collateral. why banks have a comparative advantage in raising funds for American businesses. C) why borrowers are willing to offer collateral to secure their promises to repay loans. D) all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 24) The problem of adverse selection helps to explain A) which firms are obtain funds from banks and other financial intermediaries, rather than from securities markets. more likely to B) why collateral is an important feature of consumer, but not business, debt contracts. C) why direct D) finance is more important than indirect finance as a source of business finance. only A and B of the above. Answer: A Question Status: Previous Edition 25) The concept of adverse selection helps to explain A) why collateral is not a common feature of many debt contracts. B) why large, well- established corporations find it so difficult to borrow funds in securities markets. C) why financial markets are among the most heavily regulated sectors of the economy. D) all of the above. Answer: C Question Status: Previous Edition 26) That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries A) have been government treatment, since used car dealers do not provide information that is valued by afforded special consumers of used cars. B) are able to C) prevent potential competitors from free-riding off the information that they provide. have failed to solve adverse selection problems in this market because "lemons" continue to be traded. D) do all of the above. Answer: B Question Status: Previous Edition 27) That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries A) provide B) information that is valued by consumers of used cars. are able to C) prevent others from free-riding off the information that they provide. can profit by D) becoming experts in determining whether an automobile is a good car or a lemon. do all of the above. Answer: D Question Status: Previous Edition 28) A key finding of the economic analysis of financial structure is that A) the existence of problem for traded securities helps to explain why banks play a predominant role in financing the the free-rider activities of businesses. B) while free-rider the extent to which securities markets finance some business activities, nevertheless the majority of problems limit funds going to businesses are channeled through securities markets. C) given the great securities markets are regulated, free-rider problems are not of significant economic consequence extent to which in these markets. D) economists do not have a very good explanation for why securities markets are so heavily regulated. Answer: A Question Status: Previous Edition 29) In the United States, the government agency requiring that firms, which sell securities in public markets, adhere to standard accounting principles and disclose information about their sales, assets, and earnings is the A) Federal B) Corporate Securities Commission. Federal Trade Commission. C) Securities and Exchange Commission. D) U.S. Treasury Department. E) Federal Reserve System. Answer: C Question Status: Previous Edition 30) An audit certifies that A) a firm's loans B) will be repaid. a firm's C) securities are safe investments. a firm abides by standard accounting principles. D) the information reported in a firm's accounting statements is correct. Answer: C Question Status: Previous Edition 31) The authors' analysis of adverse selection indicates that financial intermediaries in general, and banks in particular (because they hold a large fraction of non-traded loans), A) have advantages the free-rider problem, helping to explain why indirect finance is a more important source of in overcoming business finance than is direct finance. B) play a greater funds to corporations than do securities markets as a result of their ability to overcome the freerole in moving rider problem. C) provide better- larger corporations a higher percentage of their external funds than they do to newer and smaller known and corporations, which rely to a greater extent on the new issues market for funds. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 32) The authors' analysis of adverse selection indicates that financial intermediaries A) overcome free- rider problems by holding non-traded loans. B) must buy C) securities from corporations to diversify the risk that results from holding non-tradable loans. have not been very successful in dealing with adverse selection problems in financial markets. D) do all of the E) above. do only A and B of the above. Answer: A Question Status: Previous Edition 33) The pecking order hypothesis predicts that the _________ a corporation is, the more likely it will be to _________. A) smaller and less well known; issue securities B) larger and more well known; borrow from financial intermediaries C) larger and more well known; issue securities D) smaller and less well known; need external financing Answer: C Question Status: Previous Edition 34) Financial aries and, particularly, banks have the ability to avoid the free-rider problem as long as they primarily intermedi A) make private B) loans. acquire a C) diversified portfolio of stocks. buy junk bonds. D) do a balanced combination of A and B of the above. Answer: A Question Status: Previous Edition 35) Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called A) points. B) interest. C) collateral. D) good faith money. Answer: C Question Status: Previous Edition 36) Collateral is A) property that is pledged to the lender if a borrower cannot make his or her debt payments. B) a prevalent C) feature of debt contracts for households. a prevalent D) feature of debt contracts for business. all of the above. E) only A and C of the above. Answer: D Question Status: Previous Edition 37) The majority of household debt in the United States consists of A) credit card debt. B) consumer C) installment debt. collateralized loans. D) unsecured loans, such as student loans. Answer: C Question Status: Previous Edition 38) Commerc ial and farm mortgages, in which property is pledged as collateral, account for A) one-quarter of borrowing by nonfinancial businesses. B) one-half of C) borrowing by nonfinancial businesses. one-twentieth of borrowing by nonfinancial businesses. D) two-thirds of borrowing by nonfinancial businesses. Answer: A Question Status: Previous Edition 39) Because of the moral hazard problem, A) lenders will B) write debt contracts that restrict certain activities of borrowers. lenders will C) more readily lend to borrowers with high net worth. debt contracts are used less frequently to raise capital than are equity contracts. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 40) Moral equity contracts is known as the _________ problem because the manager of the firm has fewer hazard in incentives to maximize profits than the stockholders might ideally prefer. A) principal-agent B) adverse C) selection free-rider D) debt deflation Answer: A Question Status: Previous Edition 41) Because (_________) have less incentive to maximize profits than the stockholders-owners (_________) do, managers stockholders find it costly to monitor managers; thus, stockholders are reluctant to purchase equities. A) principals; B) agents principals; C) principals agents; agents D) agents; principals Answer: D Question Status: Previous Edition 42) The principal-agent problem A) occurs when B) managers have more incentive to maximize profits than the stockholders-owners do. would not arise if the owners of the firm had complete information about the activities of the managers. C) in financial explain why equity is a relatively important source of finance for American business. markets helps to D) all of the above. E) only A and B of the above. Answer: B Question Status: Previous Edition 43) Solutions to the moral hazard problem include A) high net worth. B) monitoring and enforcement of restrictive covenants. C) greater reliance on equity contracts and less on debt contracts. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 44) One intermediary in our financial structure that helps to reduce the moral hazard arising from the principalfinancial agent problem is the A) venture capital firm. B) money market mutual fund. C) pawn broker. D) savings and loan association. Answer: A Question Status: Previous Edition 45) A venture capital firm protects its equity investment from moral hazard through which of the following means? A) It places people on the board of directors to better monitor the borrowing firm's activities. B) It writes C) contracts that prohibit the sale of an equity investment to anyone but the venture capital firm. It prohibits the borrowing firm from replacing its management. D) It does both A and B of the above. E) It does both A and C of the above. Answer: D Question Status: Previous Edition 46) Debt contracts A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals. B) have an C) advantage over equity contracts in that they have a lower cost of state verification. are used much more frequently to raise capital than are equity contracts. D) all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 47) Equity contracts account for a small fraction of external funds raised by American businesses because A) costly state B) verification makes the equity contract less desirable than the debt contract. there is greater scope for moral hazard problems under equity contracts, as compared to debt contracts. C) equity contracts do not permit borrowing firms to raise additional funds by issuing debt. D) all of the above. E) both A and B of the above. Answer: E Question Status: Previous Edition 48) A debt contract is said to be incentive compatible if A) the borrower's net worth reduces the probability of moral hazard. B) restrictive C) covenants limit the type of activities that can be undertaken by the borrower. both A and B of the above occur. D) neither (a) nor (b) of the above occur. Answer: A Question Status: Previous Edition 49) A debt contract is more likely to be incentive compatible if A) the company B) must follow standard accounting principles. the funds are C) provided by a venture capital firm. owners of the firm have more of their own money in the business. D) all of the above. E) only B and C. Answer: C Question Status: Previous Edition 50) A clause in a mortgage loan contract requiring the borrower to purchase homeowner's insurance is an example of A) a restrictive B) covenant. a collusive C) agreement between mortgage lenders and insurance companies. both A and B of the above. D) neither A and B of the above. Answer: A Question Status: Previous Edition 51) A debt contract that specifies that the company can only use the funds to finance certain activities A) is a private B) loan. contains a C) restrictive covenant. increases the D) problem of adverse selection. all of the above. E) only A and B. Answer: B Question Status: Previous Edition 52) Which of following are accurate statements concerning the role that restrictive covenants play in reducing moral the hazard in financial markets? A) Covenants B) reduce moral hazard by restricting borrowers' undesirable behavior. Covenants C) require that borrowers keep collateral in good condition. Covenants D) require periodic accounting statements and income reports. All of the E) above. Only A and B of the above. Answer: D Question Status: Previous Edition 53) Although restrictive covenants can potentially reduce moral hazard, a problem with restrictive covenants is that A) borrowers may find loopholes that make the covenants ineffective. B) they are costly to monitor and enforce. C) too many be devoted to monitoring and enforcing them, as debtholders duplicate others' monitoring and resources may enforcement efforts. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 54) Governm developing countries sometimes adopt policies that retard the efficient operation of their financial ents in systems. These actions include policies that A) prevent lenders from foreclosing on borrowers with political clout. B) nationalize C) banks and direct credit to politically-favored borrowers. make it costly to collect payments and collateral from defaulting debtors. D) do all of the E) above. do only A and B of the above. Answer: D Question Status: Previous Edition 55) Financial crises A) are major financial markets that are characterized by sharp declines in asset prices and the failures of many disruptions in financial and nonfinancial firms. B) occur when C) adverse selection and moral hazard problems in financial markets become more significant. frequently lead to sharp contractions in economic activity. D) all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 56) Financial crises A) cause failures of intermediaries and leave only securities markets to channel funds from savers to borrowers. financial B) are a recent C) phenomenon that occurs only in developing countries. invariably lead to debt deflation. D) all of the above. E) none of the above. Answer: E Question Status: Previous Edition 57) Factors that lead to worsening conditions in financial markets include A) increases in B) interest rates. declining stock prices. C) increasing D) uncertainty in financial markets. all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 58) Factors that lead to worsening conditions in financial markets include A) declining B) interest rates. unanticipated increases in the price level. C) bank panics. D) only A and C of the above. E) only B and C of the above. Answer: C Question Status: Previous Edition 59) If the of a financial crisis is thought of as a sequence of events, which of the following events would be least anatomy likely to be the initiating cause of the financial crisis? A) Increase in B) interest rates Bank panic C) Stock market decline D) Increase in uncertainty Answer: B Question Status: Previous Edition 60) An examination of past financial crises in the United States indicates that a bank panic has typically been A) the one key B) factor that initiates a financial crisis. a consequence of worsening conditions during a financial crisis. C) the result of D) declining interest rates that raised adverse selection problems. an event that is unrelated to financial crises. Answer: B Question Status: Previous Edition 61) Most financial crises in the United States have begun with A) a steep stock B) market decline. an increase in uncertainty resulting from the failure of a major firm. C) a steep decline in interest rates. D) all of the above. E) only A and B of the above. Answer: E Question Status: Previous Edition 62) Most financial crises in the United States have begun with A) a sharp rise in interest rates. B) a steep stock C) market decline. an increase in uncertainty resulting from the failure of a major firm. D) all of the above. E) only A and B of the above. Answer: D Question Status: Previous Edition 63) In a direct effect on increasing adverse selection problems, increases in interest rates also promote financial addition crises by _________ firms' and households' interest payments, thereby _________ their cash flow. to having A) increasing; B) increasing increasing; C) decreasing decreasing; D) increasing decreasing; decreasing Answer: B Question Status: Previous Edition 64) Deteriorat firm's balance sheet and a decline in net worth, which increases adverse selection and moral hazard ion in a problems, can be caused by A) a sharp drop in the price level. B) a sharp increase in uncertainty. C) a sharp D) depreciation of the domestic currency. all of the above. E) only A and C. Answer: E Question Status: Previous Edition 65) Adverse and moral hazard problems increased in magnitude during the early years of the Great Depression as selection A) stock prices B) declined to 10 percent of their level in 1929. banks failed. C) the aggregate price level declined. D) a result of all of the above. E) a result of A and B of the above. Answer: D Question Status: Previous Edition 66) Adverse and moral hazard problems increased in magnitude during the early years of the Great Depression as selection A) stock prices B) declined to 10 percent of their level in 1929. banks failed. C) the aggregate price level rose. D) a result of all of the above. E) a result of A and B of the above. Answer: E Question Status: Previous Edition 67) Financial crises in the United States and Mexico A) were similar in being precipitated by an increase in interest rates abroad. B) were different because in Mexico speculative attacks in the foreign exchange market played a key role. C) were similar in being preceded by stock market declines. D) all of the above. E) only A and C. Answer: D Question Status: Previous Edition 68) Stock market declines preceded a full blown financial crisis A) in the United B) States in 1987. in Thailand in 1997. C) in Indonesia in 1997. D) all of the above. E) only B and C. Answer: B Question Status: Previous Edition 69) Which of the following factors led up to the Mexican financial crisis of 1994? A) Speculative B) attacks on the peso and a rise in actual and expected inflation. A rise in C) domestic interest rates and a deterioration in bank balance sheets. A rise in D) foreign interest rates and domestic stock market declines. all of the above. E) only B and C. Answer: E Question Status: Previous Edition 70) Institution al features of debt markets in Asia that propelled several countries into financial crisis include A) debt contracts with long duration. B) firms with debt denominated in U.S. dollars. C) governments D) that could not intervene to protect depositors. all of the above. E) only A and C. Answer: B Question Status: Previous Edition 71) Argentina' s 2001-2002 financial crisis was precipitated by A) a weak and B) poorly supervised banking system. a lending boom that fueled a stock market bubble. C) difficulty D) financing a large budget deficit. a decline in interest rates. Answer: C Question Status: Previous Edition 72) Economie s of scale A) in the financial not explain why financial intermediaries developed and have become such an important part of our markets does financial structure. B) can be used to an advantage by reducing transaction cost. C) both of the D) above. neither of the above. Answer: B Question Status: New 73) Liquidity services are services that A) make it easier for customers to conduct transactions. B) conducts C) transactions for the customer. increase D) transaction costs. all of the above. Answer: A Question Status: New 74) Adverse selection A) is a problem B) created by asymmetrical information after the transaction. can be solved by eliminating asymmetrical information C) occurs when D) people do not pay for information take advantage of the information other people have to pay for. all of the above. Answer: B Question Status: New 75) The free- rider problem A) occurs when B) people do not pay for information take advantage of the information other people have to pay for. suggests that C) the private sale of information will only be a partial solution to the lemons problem. prevents the from producing enough information to eliminate all the asymmetric information that leads to private market adverse selection. D) all of the above. Answer: D Question Status: New 76) Bad firms A) do not have an incentive to make themselves look good. B) will slant their information they are required to transmit to the public. C) both A and B. D) neither A and B. Answer: B Question Status: New 77) A bank A) has the ability to profit from the information it produces. B) avoids the free- by primarily making private loans rather than by purchasing securities that are traded in the open rider problem market. C) becomes D) experts in determining good firms from bad firms. all of the above. Answer: D Question Status: New 78) Net worth A) is the difference between current assets and current liabilities. B) is the difference between assets and liabilities. C) is total assets D) divided by total liabilities. is total assets plus total liabilities. Answer: B Question Status: New 15.2 True/ 1) American businesses get more funds from direct financing than from indirect financing. Answer: FALSE Question Status: Previous Edition 2) American businesses use stock to finance about 10 percent of their external financing. Answer: TRUE Question Status: Previous Edition 3) One reason why indirect financing is used is to minimize adverse selection problems. Answer: TRUE Question Status: Previous Edition 4) Issuing marketable securities is the primary way businesses finance their operations. Answer: FALSE Question Status: Previous Edition 5) Because of the adverse selection problem, lenders may refuse loans to individuals with low net worth. Answer: TRUE Question Status: Previous Edition 6) The adverse selection helps to explain why indirect finance is more important than direct finance as a source concept of of business finance. Answer: TRUE Question Status: Previous Edition 7) The of adverse selection helps to explain why direct finance is more important than indirect finance as a problem source of business finance. Answer: FALSE Question Status: Previous Edition 8) The concept of adverse selection helps explain why collateral is an important feature of many debt contracts. Answer: TRUE Question Status: Previous Edition 9) One way describing the solution that high net worth provides to the moral hazard problem is to say that it makes of debt contracts incentive compatible. Answer: TRUE Question Status: Previous Edition 10) Factors to worsening conditions in financial markets include increasing interest rates and unanticipated increases that lead in the price level. Answer: FALSE Question Status: Previous Edition 11) Economie mean that the percentage return on a financial transaction rises as the size of the transaction rises. s of scale Answer: FALSE Question Status: Previous Edition 12) Agency theory focuses on how government agencies regulate financial intermediaries and markets. Answer: FALSE Question Status: Previous Edition 13) The agent problem is an example of the adverse selection problem that can result from asymmetric principal- information. Answer: FALSE Question Status: Previous Edition 14) The financial system is one of the most heavily regulated sectors of the economy. Answer: TRUE Question Status: New 15) Collateriz ed debt is also called secured debt. Answer: TRUE Question Status: New 15.3 Essay 1) What are economies of scale in financial transactions? How can financial intermediaries achieve these economies? Question Status: Previous Edition 2) Explain how the "lemons" problem could cause financial markets to fail. Question Status: Previous Edition 3) Distinguis h between adverse selection and moral hazard. Question Status: Previous Edition 4) What facts about financial structure can be explained by adverse selection? Question Status: Previous Edition 5) What facts about financial structure can be explained by moral hazard? Question Status: Previous Edition 6) What factors usually cause an increase in moral hazard and adverse selection? Question Status: Previous Edition 7) What is the principal-agent problem? Question Status: Previous Edition 8) Describe the sequence of events in a financial crisis and explain why they can cause economic activity to decline. Question Status: Previous Edition 9) What is the free-rider problem? Describe some situations that this problem creates. Question Status: New ...
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This note was uploaded on 10/17/2011 for the course ECON 317 taught by Professor Guidry during the Spring '11 term at Nicholls State.

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ch15 - Financial Markets and Institutions 6e(Mishkin/Eakins...

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