Factors likely to cause a financial crisis in emerging market countries include

Factors likely to cause a financial crisis in emerging market countries include  A) fiscal imbalances. B) decreases in foreign interest rates. C)...

Argentina's financial crisis was due to

Argentina's financial crisis was due to  A) poor supervision of the banking system. B) a lending boom prior to the crisis. C) fiscal imbalances. D)...

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East...

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include  A) weak supervision by bank regulators. B) a rise...

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include  A) failure of the Mexican oil monopoly. B) the ratification...

An important factor leading up to the Mexican financial crisis of 1994-1995 was

An important factor leading up to the Mexican financial crisis of 1994-1995 was  A) the failure of the Mexican oil monopoly. B) increasing loan...

In recent years, a number of developing and transition countries have experienced financial crises, the most dramatic of which was the

In recent years, a number of developing and transition countries have experienced financial crises, the most dramatic of which was the A) Mexican...

In emerging economies such as Argentina, government fiscal imbalances may cause fears of

In emerging economies such as Argentina, government fiscal imbalances may cause fears of  A) debt deflation. B) default on government debt. C)...

Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as

Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as A) stock prices declined to...

A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession. This process is called

A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession. This process is called A)...

Debt deflation occurs when

Debt deflation occurs when A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased...

The sequence of events in a U.S. financial crisis is ________ leading to ________ leading to ________.

The sequence of events in a U.S. financial crisis is ________ leading to ________ leading to ________. A) debt deflation; increased interest rates;...

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating cause of the financial crisis?

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating...

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating cause of the financial crisis?

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating...

Most major financial crises in the United States have begun with

Most major financial crises in the United States have begun with  A) a sharp decline in interest rates. B) a sharp stock market decline. C)...

A bank panic can lead to a severe contraction in economic activity due to

A bank panic can lead to a severe contraction in economic activity due to  A) a decline in international trade. B) the losses of bank shareholders. C)...

In a bank panic the source of contagion is the

In a bank panic the source of contagion is the  A) free-rider problem. B) too-big-to-fail problem. C) transactions cost problem. D) asymmetric...

In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________ firms' and households' interest payments, thereby ________ their cash flow.

In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________...

Factors that lead to worsening conditions in financial markets include:

Factors that lead to worsening conditions in financial markets include:  A) declining interest rates. B) unanticipated increases in the price...

One reason China has been able to grow so rapidly even though its financial development is still in its early stages is

One reason China has been able to grow so rapidly even though its financial development is still in its early stages is A) the high savings rate of...

One reason financial systems in developing and transition countries are underdeveloped is

One reason financial systems in developing and transition countries are underdeveloped is A) they have weak links to their governments. B) they make...

The Global Legal Settlement of 2002 required investment banks to separate ________ and ________.

The Global Legal Settlement of 2002 required investment banks to separate ________ and ________. A) research; securities underwriting B) deposits;...

The Sarbanes-Oxley Act of 2002 increased supervisory oversight by

The Sarbanes-Oxley Act of 2002 increased supervisory oversight by  A) giving the FDIC the authority to review independent audits. B) increasing...

The practice of ________ is allocating initially underpriced initial public offerings to executives in companies the investment bank hopes to do underwriting business with in the future.

The practice of ________ is allocating initially underpriced initial public offerings to executives in companies the investment bank hopes to do underwriting...

Because conflicts of interest increase asymmetric information problems

Because conflicts of interest increase asymmetric information problems  A) the economy will not operate as efficiently. B) loans will not be...

The presence of economies of scope may benefit financial institutions but may create potential costs from ________.

The presence of economies of scope may benefit financial institutions but may create potential costs from ________. A) conflicts of interest B) multiple...

Why does the free-rider problem occur in the debt market?

Why does the free-rider problem occur in the debt market? Restrictive covenants can reduce moral hazard but they must be monitored and enforced to...

A key finding of the economic analysis of financial structure is that

A key finding of the economic analysis of financial structure is that A) the existence of the free-rider problem for traded securities helps to explain...

For restrictive covenants to help reduce the moral hazard problem they must be ________ by the lender.

For restrictive covenants to help reduce the moral hazard problem they must be ________ by the lender. A) monitored and enforced B) written in all...

A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a

A clause in a debt contract requiring that the borrower purchase insurance against loss of the asset financed with the loan is called a A) collateral-insurance...

Although restrictive covenants can potentially reduce moral hazard, a problem with restrictive covenants is that

Although restrictive covenants can potentially reduce moral hazard, a problem with restrictive covenants is that A) borrowers may find loopholes that...

Professional athletes often have contract clauses prohibiting risky activities such as skiing and motorcycle riding. These clauses are

Professional athletes often have contract clauses prohibiting risky activities such as skiing and motorcycle riding. These clauses are A) limited-liability...

Solutions to the moral hazard problem include

Solutions to the moral hazard problem include  A) low net worth. B) monitoring and enforcement of restrictive covenants. C) greater reliance...

A debt contract is incentive compatible

A debt contract is incentive compatible A) if the borrower has the incentive to behave in the way that the lender expects and desires, since doing...

High net worth helps to diminish the problem of moral hazard problem by

High net worth helps to diminish the problem of moral hazard problem by  A) requiring the state to verify the debt contract. B) collateralizing...

One way of describing the solution that high net worth provides to the moral hazard problem is to say that it

One way of describing the solution that high net worth provides to the moral hazard problem is to say that it A) collateralizes the debt contract. B)...

Explain the principal-agent problem as it pertains to equity contracts.

Explain the principal-agent problem as it pertains to equity contracts. The principals are the stockholders who own most of the equity. The agents...

Equity contracts account for a small fraction of external funds raised by American businesses because

Equity contracts account for a small fraction of external funds raised by American businesses because A) costly state verification makes the equity...

Debt contracts

Debt contracts A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals. B) have a higher cost of state verification...

Because information is scarce

Because information is scarce A) helps explain why equity contracts are used so much more frequently to raise capital than are debt contracts. B)...

A venture capital firm protects its equity investment from moral hazard through which of the following means?

A venture capital firm protects its equity investment from moral hazard through which of the following means? A) It places people on the board of...

One financial intermediary in our financial structure that helps to reduce the moral hazard from arising from the principal-agent problem is the

One financial intermediary in our financial structure that helps to reduce the moral hazard from arising from the principal-agent problem is the A)...

Government regulations designed to reduce the moral hazard problem include

Government regulations designed to reduce the moral hazard problem include  A) laws that force firms to adhere to standard accounting principles. B)...

Equity contracts

Equity contracts  A) are claims to a share in the profits and assets of a business. B) have the advantage over debt contracts of a lower costly...

The recent Enron and Tyco scandals are an example of

The recent Enron and Tyco scandals are an example of  A) the free-rider problem. B) the adverse selection problem. C) the principal-agent problem. D)...

A problem for equity contracts is a particular type of ________ called the ________ problem.

A problem for equity contracts is a particular type of ________ called the ________ problem.  A) adverse selection; principal-agent B) moral...

The principal-agent problem

The principal-agent problem  A) occurs when managers have more incentive to maximize profits than the stockholders-owners do. B) in financial...

Because managers (________) have less incentive to maximize profits than the stockholders-owners (________) do, stockholders find it costly to monitor managers; thus, they are reluctant to purchase equities.

Because managers (________) have less incentive to maximize profits than the stockholders-owners (________) do, stockholders find it costly to monitor...

Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.

Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the...

How does collateral help to reduce the adverse selection problem in credit market?

How does collateral help to reduce the adverse selection problem in credit market? Collateral is property that is promised to the lender if the borrower...

Net worth can perform a similar role to ________.

Net worth can perform a similar role to ________.  A) diversification B) collateral C) intermediation D) economies of scale Answer: ...

As information technology improves, the lending role of financial institutions such as banks should ________.

As information technology improves, the lending role of financial institutions such as banks should ________. A) increase somewhat B) decrease C)...

The concept of adverse selection helps to explain

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...

That only large, well-established corporations have access to securities markets

That only large, well-established corporations have access to securities markets  A) explains why indirect finance is such an important source...

The problem of adverse selection helps to explain

The problem of adverse selection helps to explain A) why firms are more likely to obtain funds from banks and other financial intermediaries, rather...

Analysis of adverse selection indicates that financial intermediaries, especially banks,

Analysis of adverse selection indicates that financial intermediaries, especially banks, A) have advantages in overcoming the free-rider problem,...

The concept of adverse selection helps to explain all of the following except

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...

That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries

That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries A) have been afforded special...

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

In the United States, the government agency requiring that firms that sell securities in public markets adhere to standard accounting principles and...

Because of the adverse selection problem,

Because of the adverse selection problem, A) good credit risks are more likely to seek loans causing lenders to make a disproportionate amount of...

Adverse selection is a problem associated with equity and debt contracts arising from

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...

A lesson of the Enron collapse is that government regulation

A lesson of the Enron collapse is that government regulation  A) always fails. B) can reduce but not eliminate asymmetric information. C) increases...

Government regulations require publicly traded firms to provide information, reducing

Government regulations require publicly traded firms to provide information, reducing  A) transactions costs. B) the need for diversification. C)...

The ________ problem helps to explain why the private production and sale of information cannot eliminate ________.

The ________ problem helps to explain why the private production and sale of information cannot eliminate ________. A) free-rider; adverse selection B)...

The free-rider problem occurs because

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)...

Because of the "lemons problem" the price a buyer of a used car pays is

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)...

The "lemons problem" exists because of

The "lemons problem" exists because of  A) transactions costs. B) economies of scale. C) rational expectations. D) asymmetric information. Answer:...

The analysis of how asymmetric information problems affect economic behavior is called ________ theory.

The analysis of how asymmetric information problems affect economic behavior is called ________ theory. A) uneven B) parallel C) principal D) agency Answer:...

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of...

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________.

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs...

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

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries...

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

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...

How does a mutual fund lower transactions costs through economies of scale?

How does a mutual fund lower transactions costs through economies of scale? The mutual fund takes the funds of the individuals who have purchased...

Financial intermediaries develop ________ in things such as computer technology which allows them to lower transactions costs.

Financial intermediaries develop ________ in things such as computer technology which allows them to lower transactions costs. A) expertise B) diversification C)...

Which of the following is not a benefit to an individual purchasing a mutual fund?

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)...

The reduction in transactions costs per dollar of investment as the size of transactions increases is

The reduction in transactions costs per dollar of investment as the size of transactions increases is A) discounting. B) economies of scale. C) economies...

The current structure of financial markets can be best understood as the result of attempts by financial market participants to

The current structure of financial markets can be best understood as the result of attempts by financial market participants to A) adapt to continually...

Which of the following is not one of the eight basic puzzles about financial structure?

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...

Which of the following is not one of the eight basic puzzles about financial structure?

Which of the following is not one of the eight basic puzzles about financial structure? A) Debt contracts are typically extremely complicated legal...

Which of the following is not one of the eight basic puzzles about financial structure?

Which of the following is not one of the eight basic puzzles about financial structure? A) Only large, well-established corporations have access...

Which of the following is not one of the eight basic puzzles about financial structure?

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...

Which of the following is not one of the eight basic puzzles about financial structure?

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...

A clause in a mortgage loan contract requiring the borrower to purchase homeowner's insurance is an example of a

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...

A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.

A ________ is a provision that restricts or specifies certain activities that a borrower can engage in. A) residual claimant B) risk hedge C) restrictive...

If you default on your auto loan, your car will be repossessed because it has been pledged as ________ for the loan.

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)...

Credit card debt is

Credit card debt is  A) secured debt. B) unsecured debt. C) restricted debt. D) unrestricted debt. Answer: ...

Collateralized debt is also known as

Collateralized debt is also known as  A) unsecured debt. B) secured debt. C) unrestricted debt. D) promissory debt. Answer: ...

The predominant form of household debt is

The predominant form of household debt is  A) consumer installment debt. B) collateralized debt. C) unsecured debt. D) unrestricted debt. Answer:...

Commercial and farm mortgages, in which property is pledged as collateral, account for

Commercial and farm mortgages, in which property is pledged as collateral, account for  A) one-quarter of borrowing by nonfinancial businesses. B)...

Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called

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)...

One purpose of regulation of financial markets is to

One purpose of regulation of financial markets is to  A) limit the profits of financial institutions. B) increase competition among financial...

Regulation of the financial system

Regulation of the financial system  A) occurs only in the United States. B) protects the jobs of employees of financial institutions. C) protects...

As a source of funds for nonfinancial businesses, stocks are relatively more important in

As a source of funds for nonfinancial businesses, stocks are relatively more important in  A) the United States. B) Germany. C) Japan. D) Canada. Answer:...

Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds

Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds  A) by issuing stock. B) by issuing bonds. C) from nonbank loans. D)...

With regard to external sources of financing for nonfinancial businesses in the United States, which of the following are accurate statements?

With regard to external sources of financing for nonfinancial businesses in the United States, which of the following are accurate statements? A)...

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are true?

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are true? A) Issuing marketable...

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are true?

Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States are true? A) Stocks are...

Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.

Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total. A) 2% B)...

Of the following sources of external finance for American nonfinancial businesses, the least important is

Of the following sources of external finance for American nonfinancial businesses, the least important is A) loans from banks. B) stocks. C) bonds...

Of the sources of external funds for nonfinancial businesses in the United States, corporate bonds and commercial paper account for approximately ________ of the total.

Of the sources of external funds for nonfinancial businesses in the United States, corporate bonds and commercial paper account for approximately ________...

Of the sources of external funds for nonfinancial businesses in the United States, loans from banks and other financial intermediaries account for approximately ________ of the total.

Of the sources of external funds for nonfinancial businesses in the United States, loans from banks and other financial intermediaries account for approximately...

American businesses get their external funds primarily from

American businesses get their external funds primarily from  A) bank loans. B) bonds and commercial paper issues. C) stock issues. D) other loans. Answer:...