Financial intermediaries a exist because there are

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29) Financial intermediaries A) exist because there are substantial information and transaction costs in the economy. B) improve the lot of the small saver. C) are involved in the process of indirect finance. D) do all of the above. E) do only (A) and (B) of the above. Answer: D 30) The main sources of financing for businesses, in order of importance, are 31) The presence of transaction costs in financial markets explains, in part, why 32) Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of 14
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33) The presence of _____ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. A) noncollateralized risk B) free-riding C) asymmetric information D) costly state verification Answer: C 34) When the lender and the borrower have different amounts of information regarding a transaction, ______________ is said to exist. 35) When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ______________ is said to exist. 36) When the borrower engages in activities that make it less likely that the loan will be repaid, _____________ is said to exist. 37) The concept of adverse selection helps to explain A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. B) why indirect finance is more important than direct finance as a source of business finance. C) why direct finance is more important than indirect finance as a source of business finance. D) only (A) and (B) of the above. E) only (A) and (C) of the above. Answer: D 15
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