1. The structure of financial markets is influenced by the problems relating to asymmetric information. For each of the market characteristics below, indicate whether the problem arises because of Adverse Selection or Moral Hazard. (1=Adverse Selection, 2=Moral Hazard) The SEC requires disclosure of annual operations to current shareholders. The most used sources of exterm funds for a company are loans, not stocks c bonds. JCPenney will find it easier to iss stock than the Charlie's Store in downtownVermillion. Loan contracts include language restricting the borrower's actions

1. The structure of financial markets is influenced by the problems relating to asymmetric information. For each of the market characteristics below, indicate whether the problem arises because of Adverse Selection or Moral Hazard. (1=Adverse Selection, 2=Moral Hazard) The SEC requires disclosure of annual operations to current shareholders. The most used sources of exterm funds for a company are loans, not stocks c bonds. JCPenney will find it easier to iss stock than the Charlie's Store in downtownVermillion. Loan contracts include language restricting the borrower's actions

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Give typing answer with explanation and conclusion Financial instruments with high information costs Select one: A. will have lower yields than U.S. Treasury securities. B. may not be offered for sale in some states. C. will have lower prices than similar instruments with low information costs. D. will usually be more liquid than similar instruments with low information costs
7. 7. Secured loans mean there are usually no collateral or guarantees by a third party to secure the money lent by the bank to the borrowers in case of default. 8. A common fund trader says that the stocks of big listed companies have an equivalent liquidity as that of cash, so his fund should allocate all capital in stocks. True or false. No need explanation
8. The slope of the capital market is market line is while the slope of the security A. the ratio between the excess return and the variance of the return of the market portfolio; the ratio between the excess return and the beta of the efficient portfolio B. the ratio between the excess return and the standard deviation of the return of the efficient portfolio; the ratio between the excess return and the beta of the market portfolio C. the ratio between the excess return and the beta of the market portfolio; the ratio between the excess return and the beta of the market portfolio D. the ratio between the risk free rate and the standard deviation of the efficient portfolio; the ratio between the risk free rate and the beta of the market portfolio
1) If you are offered the choice of receiving $10,000 today or $10,000 in one year, which option would you choose? Explain using the core principle that you have learned in class. 2) If the U.S. Securities and Exchange Commission eliminated its requirement for public companies to disclose information about their finances, what would you expect to happen to the stock prices for these companies?
Which of the following represents the risk of investment in order from lowest to highest? O A. certificate of deposit, mutual funds, savings, stocks O B. stocks, mutual funds, savings, certificate of deposit C. savings, certificate of deposit, mutual funds, stocks D. mutual funds, stocks, savings, certificate of deposit
Question 2 of 10. Paul owns 100 shares of stock in an S corporation which he purchased for $57 per share. He gave 10 shares to his daughter, Julie. He also sold 10 shares to his friend, Bill, for $65 a share. What are Paul, Julie, and Bill's respective bases after those transactions? Paul: $4,560Julie: $570Bill: $570 Paul: $4,560Julie: $570Bill: $650 Paul: $5,700Julie: $570Bill: $570 Paul: $5,700Julie: $570Bill: $650
a) Explain the reason(s) why bond ratings and interest rate spreads on bonds differ. Which measure is considered by many investors to be a more comprehensive measure of risk? Why?
Use the information in the paragraph to answer the following questions. In early October 2008, before the Global Financial Crisis broke, the SA risk premium was a low 2%. But by 24 October that month, the risk premium had risen devastatingly to 6.5%. By the end of that tumultuous year, the risk premium had declined to a still elevated and expensive 4%. On 19 October 2015, the risk premium before Nenegate was an average of 2.4%. But by 20 January 2016, the risk premium had topped out at 3.89%, a 150-bps increase. This declined after the Ministry of Finance had been restored to what was regarded as safer hands. a. The above paragraph notes two economic shocks which resulted in changes (initial increase, then decrease) in the risk premium in South Africa. With use of two diagrams explain how these changes would have impacted the cost of borrowing, the real interest rate and output in South Africa. b. What policy/ies could the South African government have adopted to offset the impact of…
Which of the below statements is false for frictionless financial markets? A.No transactions costs B.No corporate and personal taxes C.No agency costs between shareholders and debtholders D.Information asymmetry between managers and investors
Which of the following statements is/are true? i. Borrowing from financial intermediaries is a very common way for companies to raise funding ii. Collateral and covenants reduce the burden of debt financing on borrowers. iii. Issuing stocks is the preffered way for companies to raise funds, which is why stock performance is covered heavily in the media. iv. Direct finance, where borrowers go directly to banks for funding is a very popular financing channel.
List and describe key functions performed by Treasurers of Financial institutions in primary markets when they participate in a public issue. Explain how treasurers manage the risk of information asymmetry within their respective financial institutions. 3. Outline the main risks Treasurers and Fund Managers deal with in managing their short- and long-term financial obligations.
O In the Secondary Markets securities are continuously resold. The following are correct statements about the concept of Money, and current forms of Money in the economy, EXCEPT: O Money is anything widely accepted as a medium of exchange. The most important quality of Money is its Liquidity. US Dollars are fiat money, and legal tender for USA transactions. Bitcoin is a new potential form of money that is limited in availability, and traded in a decentralized system.