Finance 305 Exam 2 With Complete Questions And
Correct Verified Answers
The 8 basic facts about financial structure - (ANSWERS)1. Stocks are only small
sources of external financing
2. Issuing marketable debt and securities is not the main way corporations get
financing
3. Indirect finance is more important than direct
4. Financial intermediaries, especially banks, are most important for external funds
5. Financial system is heavily regulated
6. Only large established corporations have access to securities markets
7. Collateral is prevalent in debt contracts
8. Debt contracts are complicated and have restrictions on borrower behavior
Which of the following is not one of the eight basic facts about financial structure? -
(ANSWERS)New security issues are the most important source of external funds to
finance businesses.
Which of the following is not one of the eight basic facts about financial structure? -
(ANSWERS)Issuing marketable securities is the primary way businesses finance
their operations.
Banks providing depositors with checking accounts that enable them to pay their
bills easily is known as - (ANSWERS)liquidity services.
Financial intermediaries - (ANSWERS)Are involved in the process of indirect
finance
Exist because there are substantial information and transaction costs in the economy
Improve the lot of the small saver
The presence of transaction costs in financial markets explains, in part, why -
(ANSWERS)financial intermediaries and indirect finance play such an important
role in financial markets.
, Finance 305 Exam 2 With Complete Questions And
Correct Verified Answers
Financial intermediaries can substantially reduce transaction costs per dollar of
transactions because their large size allows them to take advantage of -
(ANSWERS)economies of scale
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets. -
(ANSWERS)asymmetric information
When the potential borrowers who are the most likely to default are the ones most
actively seeking a loan, ________ is said to exist. - (ANSWERS)adverse selection
When the borrower engages in activities that make it less likely that the loan will be
repaid, ________ is said to exist. - (ANSWERS)moral hazard
Successful financial intermediaries have higher earnings on their investments
because they are better equipped than individuals to screen out good from bad risks,
thereby reducing losses due to - (ANSWERS)adverse selection.
In financial markets, lenders typically have inferior information about potential
returns and risks associated with any investment project. This difference in
information is called - (ANSWERS)asymmetric information
A financial intermediary's risk-sharing activities are also referred to as asset
transformation. - (ANSWERS)true
The process of financial intermediation is also known as direct finance. -
(ANSWERS)false
A financial institution can achieve cost savings in its credit card operations if it
Correct Verified Answers
The 8 basic facts about financial structure - (ANSWERS)1. Stocks are only small
sources of external financing
2. Issuing marketable debt and securities is not the main way corporations get
financing
3. Indirect finance is more important than direct
4. Financial intermediaries, especially banks, are most important for external funds
5. Financial system is heavily regulated
6. Only large established corporations have access to securities markets
7. Collateral is prevalent in debt contracts
8. Debt contracts are complicated and have restrictions on borrower behavior
Which of the following is not one of the eight basic facts about financial structure? -
(ANSWERS)New security issues are the most important source of external funds to
finance businesses.
Which of the following is not one of the eight basic facts about financial structure? -
(ANSWERS)Issuing marketable securities is the primary way businesses finance
their operations.
Banks providing depositors with checking accounts that enable them to pay their
bills easily is known as - (ANSWERS)liquidity services.
Financial intermediaries - (ANSWERS)Are involved in the process of indirect
finance
Exist because there are substantial information and transaction costs in the economy
Improve the lot of the small saver
The presence of transaction costs in financial markets explains, in part, why -
(ANSWERS)financial intermediaries and indirect finance play such an important
role in financial markets.
, Finance 305 Exam 2 With Complete Questions And
Correct Verified Answers
Financial intermediaries can substantially reduce transaction costs per dollar of
transactions because their large size allows them to take advantage of -
(ANSWERS)economies of scale
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets. -
(ANSWERS)asymmetric information
When the potential borrowers who are the most likely to default are the ones most
actively seeking a loan, ________ is said to exist. - (ANSWERS)adverse selection
When the borrower engages in activities that make it less likely that the loan will be
repaid, ________ is said to exist. - (ANSWERS)moral hazard
Successful financial intermediaries have higher earnings on their investments
because they are better equipped than individuals to screen out good from bad risks,
thereby reducing losses due to - (ANSWERS)adverse selection.
In financial markets, lenders typically have inferior information about potential
returns and risks associated with any investment project. This difference in
information is called - (ANSWERS)asymmetric information
A financial intermediary's risk-sharing activities are also referred to as asset
transformation. - (ANSWERS)true
The process of financial intermediation is also known as direct finance. -
(ANSWERS)false
A financial institution can achieve cost savings in its credit card operations if it
