FIN 3244

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist. asymmetric information adverse selection moral hazard fraud

moral hazard

Which of the following are secondary markets? The over-the-counter stock market The U.S. government bond market The options markets The New York Stock Exchange All of the above

All of the above

Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called brokers. dealers. investment bankers. traders. none of the above.

Dealers

U.S. dollars deposited in foreign banks outside the United States or in foreign branches of U.S. are referred to as foreign bonds Eurocurrencies Eurobonds Eurodollars

Eurodollars

Every financial market performs the following function: It determines the level of interest rates. It channels funds from lenders-savers to borrowers-spenders. It allows common stock to be traded. It allows loans to be made

It channels funds from lenders-savers to borrowers-spenders

Which of the following are primary markets? The over-the-counter stock market The options markets The New York Stock Exchange The U.S. government bond market None of the above

None of the above

Which of the following can be described as involving direct finance? A pension fund manager buys commercial paper in the secondary market. People buy shares in a mutual fund. A corporation's stock is traded in an over-the-counter market. An insurance company buys shares of common stock in the over-the-counter markets. None of the above.

None of the above.

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist. asymmetric information adverse selection moral hazard fraud

adverse selection

Securities are ________ for the person who buys them, but ________ for the individual/firm that sells them. liabilities; assets income; liabilities assets; liabilities liabilities; expenses

assets; liabilities

Intermediaries who are agents of investors and match buyers with sellers of securities are called brokers dealers investment bankers traders none of the above

brokers

Financial intermediaries improve the lot of the small saver. exist because there are substantial information and transaction costs in the economy. are involved in the process of indirect finance. do all of the above. do only A and B of the above.

do all of the above.

The presence of transaction costs in financial markets explains, in part, why direct financing is more important than indirect financing as a source of funds. equity and bond financing play such an important role in financial markets. financial intermediaries and indirect finance play such an important role in financial markets. corporations get more funds through equity financing than they get from financial intermediaries.

financial intermediaries and indirect finance play such an important role in financial markets.

A corporation acquires new funds only when its securities are sold in the secondary market by an investment bank. primary market by an investment bank. secondary market by a commercial bank. secondary market by a stock exchange broker.

primary market by an investment bank.

The money market is the market in which ________ are traded. short-term debt instruments new issues of securities long-term debt and equity instruments previously issued securities

short-term debt instruments

Adverse selection is a problem associated with equity and debt contracts arising from the borrower's lack of incentive to seek a loan for highly risky investments. the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. none of the above.

the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.