ch24 - Financial Markets and Institutions 6e(Mishkin/Eakins...

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Financial Markets and Institutions, 6e (Mishkin/Eakins)  Chapter 24    1
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Risk  Managemen t in  Financial  Institutions 24.1 
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Multi ple  Choi ce
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1) 
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Banks  face the  problem of _________ in loan markets because bad credit risks are the ones most likely to seek bank  loans.  A) 
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adverse  selection  B) 
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moral hazard  C) 
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moral suasion  D) 
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intentional  fraud  Answer:  
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Question Status: 
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Previous Edition 2) 
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If  borrowers  with the most risky investment projects are more likely to seek bank loans than borrowers with the safest  investment projects, banks face the problem of  A) 
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adverse credit  risk.  B) 
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adverse  selection.  C) 
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moral hazard.  D) 
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conflict of  interest.  Answer:  
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Question Status: 
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Previous Edition 3) 
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Because  borrowers , once they have a loan, are more likely to invest in high - risk investment projects, banks face the  A) 
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adverse  selection problem.  B) 
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lemon problem.  C) 
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adverse credit  risk problem.  D) 
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moral hazard  problem.  Answer:  
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Question Status: 
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Previous Edition 4) 
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Banks'  attempts  to solve adverse selection and moral hazard problems help explain loan management principles such as  A) 
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screening and  monitoring of loan applicants.  B) 
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collateral and  compensating balances.  C) 
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credit rationing.  D) 
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all of the above.  E) 
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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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ch24 - Financial Markets and Institutions 6e(Mishkin/Eakins...

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