Which of the following is not a function of financial intermediaries? A Deal with asymmetric information problems B. Reduce the exposure of investors to risk C. Promote adverse selection after transactions. D. Lower transaction costs
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Which of the following is not a function of financial intermediaries?
A Deal with asymmetric information problems
B. Reduce the exposure of investors to risk
C. Promote adverse selection after transactions.
D. Lower transaction costs
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Solved in 3 steps
- Which of the following is not a role of financial intermediaries? O A. Maturity intermediation B. Diversification C. Reducing contracting (transaction) costs D. Providing payment mechanisms E, None of the above21 of 38 Which of the following items is not a tool used to solve moral hazard problems? O A. Taxation. O B. Collateral. O C. Financial intermediation. O D. Monitoring and enforcement of restrictive covenants. UnsureThe key characteristic of financial intermediaries is that they Select one: O a. are always liquid. O b. will lend to anyone. O c. simultaneously borrow and lend. O d. provide risk-sharing services. O e. buy a diversified portfolio of assets.
- Ceteris paribus, the primary advantage of investing in mutual funds over individual stocks or bonds is that mutual funds: Select one: O a. always earn a higher rate of return than an investor could obtain with a single stock or bond. Ob. allow investors with relatively small amounts of money to diversify their investment portfolios. C. offer investors less inflation risk, and thus a higher return, than an investor could obtain with a single stock. O d. offer investors less market risk, and thus a higher return, than an investor could obtain with a single stock.5 2.Asymmetric Information. Now let’s examine the impact of asymmetric information on thecreditmarket equilibrium. Specifically, in this question we assume that Anderson is not able toobserveor enforce the project that the borrower chooses. As a result, the loan contract can onlyspecifythe interest rate (not the project). Everything else remains as in problem 1.a.What type of asymmetric information problem does Anderson face? Write a shortexplanation justifying your answer.The conflict of preferences occurs because O a. Customers of firms have different needs to those assumed by suppliers O b. Primary investors want low-cost liquidity and certainty, and the ultimate borrowers want long term risk-bearing capital O .Primary investors want a completely risk-free investment with high returns and borrowing firms offer only high risk/low return as their securities O d. Preference shares do not carry a sufficiently high dividend, given their risk
- You are thinking about purchasing an elegant shirt by mail. Shirts Galore offer an unlimited return policy while Over the Tops will refund 80 percent of the value of the shirt if you return it. Which of the following statements is most likely to be true? Select one: O a. neither company's shirts are more likely to be high quality O b. Shirts Galore's shirts are more likely to be high quality, while Over the Top's shirts are less likely to be high quality O c. Shirts Galore's shirts are less likely to be high quality, while Over the Top's shirts are more likely to be high quality O d. Both companies' shirts are more likely to be high quality3. You are in the market for a used car and decide to visit a used car dealership. Youknow that the Blue Book value of the car you are looking at is between $14,000 and$18,000.a. If you believe the dealer knows as much about the car as you do, how much areyou willing to pay? Why? Assume that you care only about the expected value ofthe car you will buy and that the car values are symmetrically distributed.b. Now you believe the dealer knows more about the car than you do. How much areyou willing to pay? Why? How can this asymmetric information problem beresolved in a competitive market?Which of the following statements regarding immunization is correct? OA. If a bank perfectly matches the maturities of the assets and liabilities, it should achieve perfect immunization for equityholders against interest rate risk. O B. Banks can immunize their portfolios by matching the maturities of their assets with their liabilities. OC. If banks need to satisfy regulatory requirements, they are required to match the durations of their assets with the leverage- adjusted durations of their liabilities. OD. If a bank immunizes a portfolio of its assets or liabilities against interest rate risk, the bank expects that the portfolio will neither gain nor lose its value when interest rates fluctuate.
- In Minsky's theory, all other things being equal, greater measures of leverage in investment result in, O a. Higher profits, with certainty O b. Lower profitability O c. Higher expected profitability and higher risksRISKS'R'US Insurance Company, who Brenda has her home insured with, became insolvent the same day her house was struck by lightning. Damage to her home was $7,500. What is the best thing for Brenda to do now? Select one: O a. Become a bag lady. O b. Try to collect something from the reinsurance companies RISKS'R'uS has treaties with. O c. Pay the damages herself. O d. Sue RISKS'R'US for payment like their other creditors. e. Try to collect something from her states' guaranty fund.Submit All Question 28 of 30 Suppose Jon decides to purchase either a long-term Treasury bond or a share of stock from a company in the Dow Jones Industrial Average. Assume that either one will behave similarly to the average security in their class, and ignore the effect of market conditions. Which security is more likely to lose most of its value in the next year after Jon purchases it? O the probabilities of major loss are the same they are both guaranteed to increase in value the stock the bond Based on historical returns, which security is likely to grow more significantly in value after Jon purchases it? the bond 8:27 PM a 46°F E 4) 12/15/202