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ECO 4223 Exam (A Grade) Questions & Answers 100% Verified Correct| Latest Update
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ECO 4223 Exam (A Grade) Questions & Answers 100% Verified Correct| Latest Update
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ECO 4223 Exam (A Grade) Questions & Answers100% Verified Correct| Latest Update
How do financial intermediaries
benefit by providing risk-sharing services? - ✔✔They are able to earn a profit on the spread
between the returns they earn on risky assets and the payments they make on the assets they
have sold
Financial intermediaries have a role to play in matching savers and borrowers for all of the
following reasons except: - ✔✔information symmetries
How do conflicts of interest make the asymmetric information problem worse? -
✔✔Competing interests may lead a financial institution to conceal information or
disseminate misleading information, which prevents financial markets from channeling funds
into the most productive investment opportunities.
Adverse selection - ✔✔Occurs when the potential borrowers who are the most likely to
produce an undesirable (adverse) outcome - the
bad credit risks - are the ones who most actively seek out a loan and are thus most likely to be
selected.
Asymmetric information - ✔✔A situation where one party often does not know enough
about the other party to make accurate decisions.
Moral hazard - ✔✔A situation where the borrower might engage in activities that are
undesirable from the lender's point of view, because they make it less likely that the loan will
be paid back.
, Why would a life insurance company be concerned about the financial stability of major
corporations or the health of the housing market? - ✔✔Most life insurance companies hold
large amounts of corporate bonds and mortgage assets.
Commercial Bank - ✔✔These financial intermediaries raise funds primarily by issuing
checkable deposits, savings deposits, and time deposits. They then use these funds to make
commercial, consumer, and mortgage loans and to buy U.S. government securities and
municipal bonds.
Savings and Loan - ✔✔These depository institutions obtain funds primarily through savings
deposits (often called shares) and time and checkable deposits. In the past, these institutions
were constrained in their activities and mostly made mortgage loans for residential housing.
Credit Union - ✔✔These financial institutions are very small cooperative lending institutions
organized around a particular group: union members, employees of a firm, and so forth. They
acquire funds from deposits called shares and primarily make consumer loans.
Mutual Fund - ✔✔These financial intermediaries acquire funds by selling shares to many
individuals and use the proceeds to purchase diversified portfolios of stocks and bonds.
Federal Reserve - ✔✔Examines the books of commercial banks that are members of the
Federal Reserve System and sets reserve requirements for all banks.
FDIC - ✔✔Provides insurance of at $250,000 for each depositor at a bank, examines the
books of insured banks, and imposes restrictions on assets they can hold.
Office of Thrift Supervision - ✔✔Examines the books of savings and loan associations and
imposes restrictions on assets they can hold.
Comptroller of the Currency - ✔✔Charters and examines the books of federally chartered
commercial banks and imposes restrictions on assets they can hold.
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