Q1) Economies of scale * A) in the financial markets does not explain why financial intermediaries developed and have become such an important part of our financial structure B) can be used to an advantage by reducing transaction cost. C) both A and B of the above D) neither A nor B of the above. Q2. Adverse selection [can select more than 1 answer] * A) is a problem created by asymmetrical information before the transaction. B) can be solved by eliminating asymmetrical information. C) helps explain why banks prefer to make loans secured by collateral
Q1) Economies of scale * A) in the financial markets does not explain why financial intermediaries developed and have become such an important part of our financial structure B) can be used to an advantage by reducing transaction cost. C) both A and B of the above D) neither A nor B of the above. Q2. Adverse selection [can select more than 1 answer] * A) is a problem created by asymmetrical information before the transaction. B) can be solved by eliminating asymmetrical information. C) helps explain why banks prefer to make loans secured by collateral
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Q1) Economies of scale *
A) in the financial markets does not explain why financial intermediaries developed and have become such an important part of our financial structure
B) can be used to an advantage by reducing transaction cost.
C) both A and B of the above
D) neither A nor B of the above.
Q2. Adverse selection [can select more than 1 answer] *
A) is a problem created by asymmetrical information before the transaction.
B) can be solved by eliminating asymmetrical information.
C) helps explain why banks prefer to make loans secured by collateral.
D) helps explain why borrowers are willing to offer collateral to secure their promises to repay loans.
Q3. Because managers (________) have less incentive to maximize profits than the stockholders-owners (________) do, stockholders find it costly to monitor managers; thus, stockholders are reluctant to purchase equities. *
A) principals; agents
B) principals; principals
C) agents; agents
D) agents; principals
Q4. One financial intermediary in our financial structure that helps to reduce the moral hazard arising from the principal-agent problem is the *
A) money market mutual fund.
B) venture capital firm.
C) pawn broker.
D) savings and loan association.
Q5. Investment banks are guilty of conflict of interest when they [ can select more than 1 answer] *
A) pressure their analysts to produce research favorable to their client firms.
B) permit executives of client firms to alter analysts' research on their firms.
C) prohibit analysts from making negative or controversial comments about client firms.
D) allow executives of potential client companies to buy underpriced initial public offerings of other companies' securities.
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