ECON320Chapter 8 Practice Test Professor C. James Hueng
1)True or False? Indirect finance, which involves the activities of financial intermediaries, is many times more
important than direct finance, in which businesses raise funds directly from lenders in financial markets.
A)True.B)False.
2)True or False? For businesses in the United States, stocks are a relatively unimportant source of finance for their
activities.
A)True.B)False.
3)True or False? For businesses in Japan, issuing marketable securities is the primary way that they finance their
activities.
A)True.B)False.
4)True or False? For businesses in the United States, non-bank loans are the most important source of external
funds to finance their activities.
A)True.B)False.
5)Which of the following statements concerning external sources of financing for nonfinancial businesses in the
United States are true?
A)Stocks are a far more important source of finance than are bonds.
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天气预报B)Stocks and bonds, combined, supply less than one-half of the external funds.C)Financial intermediaries such as banks are the least important source of external funds for businesses.
D)Since 1970, more than half of the new issues of stock have been sold to American households.
6)Which of the following statements concerning external sources of financing for nonfinancial businesses in the
United States are true?
A)Issuing marketable securities is the primary way that they finance their activities.
超清完整版中国地图B)Bonds are the least important source of external funds to finance their activities. C)Stocks are a relatively unimportant source of finance for their activities.
D)Selling bonds directly to the American household is a major source of funding for American businesses.
7)With regard to external sources of financing for nonfinancial businesses in the United States, which of the
following are accurate statements?
A)Marketable securities account for a larger share of external business financing in the United States than in
most other countries.
B)Since 1970, most of the newly issued corporate bonds and commercial paper have been sold directly to
American households.
C)Direct finance accounts for more than 50 percent of the external financing of American businesses.
D)Smaller businesses almost always raise funds by issuing marketable securities.
8)Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is
called
A)collateral.B)points.C)interest.D)good faith money.
9)If you default on your auto loan, your car will be repossessed because it has been pledged as ________ for the
loan.
A)interest B)collateral C)dividend D)commodity
10)A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.
A)residual claimant B)risk hedge
C)restrictive barrier D)restrictive covenant
11)A clause in a mortgage loan contract requiring the borrower to purchase homeowner's insurance is an example
of a
A)proscriptive covenant.B)prescriptive covenant.
C)restrictive covenant.D)constraint-imposed covenant.
12)Which of the following is not one of the eight basic puzzles about financial structure?
A)Stocks are the most important source of finance for American businesses.
B)Issuing marketable securities is not the primary way businesses finance their operations.
C)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which businesses raise funds directly from lenders in financial markets.
D)Banks are the most important source of external funds to finance businesses.
13)Which of the following is not one of the eight basic puzzles about financial structure?
A)The financial system is among the most heavily regulated sectors of the economy.
B)Issuing marketable securities is the primary way businesses finance their operations.
C)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which businesses raise funds directly from lenders in financial markets.
D)Banks are the most important source of external funds to finance businesses.
14)Which of the following is not one of the eight basic puzzles about financial structure?
A)Only large, well-established corporations have access to securities markets to finance their activities.
B)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which businesses raise funds directly from lenders in financial markets.
C)Collateral is a prevalent feature of debt contracts for households, but not business since they have many
alternative sources for funds.
D)Banks are the most important source of external funds to finance businesses.
西双版纳值得去的
景区15)Which of the following is not one of the eight basic puzzles about financial structure?
A)Debt contracts are typically extremely complicated legal documents that place substantial restrictions on
the behavior of the borrower.
B)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which businesses raise funds directly from lenders in financial markets.
C)Collateral is a prevalent feature of debt contracts for both households and business.
D)New security issues are the most important source of external funds to finance businesses.
16)Which of the following is not one of the eight basic puzzles about financial structure?
A)The financial system is among the most heavily regulated sectors of the economy.
B)Only large, well-established corporations have access to securities markets to finance their activities.
C)Direct finance, in which businesses raise funds directly from lenders in financial markets, is many times
more important than indirect finance, which involves the activities of financial intermediaries.
D)Debt contracts are typically extremely complicated legal documents that place substantial restrictions on
the behavior of the borrower.
17)The reduction in transactions costs per dollar of investment as the size of transactions increases is乌镇景区介绍
上海国旅国际旅行社电话A)discounting.B)economies of scale. C)economies of trade.D)diversification.
18)Which of the following is not a benefit to an individual purchasing a mutual fund?
A)reduced risk B)lower transactions costs
C)free-riding D)diversification
19)A borrower who takes out a loan usually has better information about the potential returns and risk of the
investment projects he plans to undertake than does the lender. This inequality of information is called
24小时天气预报实时下载A)moral hazard.B)asymmetric information.
C)noncollateralized risk.D)adverse selection.
20)If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial
intermediaries, then financial intermediaries face the problem of
A)moral hazard.B)adverse selection.
C)free-riding.D)costly state verification.
21)The problem created by asymmetric information before the transaction occurs is called ________, while the
problem created after the transaction occurs is called ________.
A)adverse selection; moral hazard B)moral hazard; adverse selection
C)costly state verification; free-riding D)free-riding; costly state verification
22)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
23)The "lemons problem" exists because of
A)transactions costs.B)economies of scale.
C)rational expectations.D)asymmetric information.
24)Because of the "lemons problem" the price a buyer of a used car pays is
A)equal to the price of a lemon.B)less than the price of a lemon.
C)equal to the price of a peach.D)between the price of a lemon and a peach.
25)The free-rider problem occurs because
A)people who pay for information use it freely.B)people who do not pay for information use it.
C)information can never be sold at any price.D)it is never profitable to produce information.
26)The ________ problem helps to explain why the private production and sale of information cannot eliminate
________.
A)free-rider; adverse selection B)free-rider; moral hazard
C)principal-agent; adverse selection D)principal-agent; moral hazard
27)Government regulations require publicly traded firms to provide information, reducing
A)transactions costs.B)the need for diversification.
C)the adverse selection problem.D)economies of scale.
28)A lesson of the Enron collapse is that government regulation
A)always fails.
B)can reduce but not eliminate asymmetric information.
C)increases the problem of asymmetric information.
D)should be reduced.
29)Adverse selection is a problem associated with equity and debt contracts arising from
A)the lender's relative lack of information about the borrower's potential returns and risks of his investment
activities.
B)the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
C)the borrower's lack of incentive to seek a loan for highly risky investments.
D)the lender's inability to restrict the borrower from changing his behavior once given a loan.
30)Because of the adverse selection problem,
A)good credit risks are more likely to seek loans causing lenders to make a disproportionate amount of loans
to good credit risks.
B)lenders may refuse loans to individuals with high net worth, because of their greater proclivity to "skip
town."
C)lenders are reluctant to make loans that are not secured by collateral.
D)lenders will write debt contracts that restrict certain activities of borrowers.
31)In the United States, the government agency requiring that firms that sell securities in public markets adhere to
standard accounting principles and disclose information about their sales, assets, and earnings is the
A)Federal Communications Commission.B)Federal Trade Commission.
C)Securities and Exchange Commission.D)Federal Reserve System.
32)That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these
intermediaries
A)have been afforded special government treatment, since used car dealers do not provide information that
is valued by consumers of used cars.
B)are able to prevent potential competitors from free-riding off the information that they provide.
C)have failed to solve adverse selection problems in this market because "lemons" continue to be traded.
D)have solved the moral hazard problem by providing valuable information to their customers.
33)The concept of adverse selection helps to explain all of the following except
A)why 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)why the financial system is so heavily regulated.
34)Analysis of adverse selection indicates that financial intermediaries, especially banks,
A)have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more
important source of business finance than is direct finance.
B)despite their success in overcoming free-rider problems, nevertheless play a minor role in moving funds
to corporations.
C)provide better-known and larger corporations a higher percentage of their external funds than they do to
newer and smaller corporations which rely to a greater extent on the new issues market for funds.
D)must buy securities from corporations to diversify the risk that results from holding non-tradable loans.
35)The problem of adverse selection helps to explain
A)why firms are more likely to obtain funds from banks and other financial intermediaries, rather than from
securities markets.
B)why collateral is an important feature of consumer, but not business, debt contracts.
C)why direct finance is more important than indirect finance as a source of business finance.
D)why lenders refuse loans to individuals with high net worth.
36)The concept of adverse selection helps to explain
A)why collateral is not a common feature of many debt contracts.
B)why large, well-established corporations find it so difficult to borrow funds in securities markets.
C)why financial markets are among the most heavily regulated sectors of the economy.
D)why stocks are the most important source of external financing for businesses.
