Banks reduce adverse selection by correct answers screening loan applicants.
Banks reduce moral hazard by correct answers monitoring the activities of their borrowers.
Which of these local firms would be most likely to get financing directly from securities markets? correct answers Mcdonalds
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ECN 5200 Final || with Errorless Solutions 100%.
Banks reduce adverse selection by correct answers screening loan applicants.
Banks reduce moral hazard by correct answers monitoring the activities of their borrowers.
Which of these local firms would be most likely to get financing directly from securities
markets? correct answers Mcdonalds
Most people who invest in mutual funds do so primarily to reduce what friction? correct answers
transaction costs
In a typical corporation, who are the principals and who are the agents? correct answers The
stockholders are the principals, and all of the employees of the firm are the agents, including the
executives
Suppose in the Salt Lake City used car market there are 1000 cars, 500 of which are perfectly
fine cars and 500 of which are run down. The current owners of the good cars value them at
$20000 and the current owners of the bad cars value them at $10000. However, there are other
people in the market who would value a good car at $22000 and there are people in the market
who would value a bad car at $14000. If it is easily discernible which are good and which are
bad, what will the market equilibrium look like? correct answers All cars will be sold at a price
of $22000 for good cars and $14000 for bad cars.
Suppose in the Salt Lake City used car market there are 1000 cars, 500 of which are perfectly
fine cars and 500 of which are run down. The current owners of the good cars value them at
$20000 and the current owners of the bad cars value them at $10000. However, there are other
people in the market who would value a good car at $22000 and there are people in the market
who would value a bad car at $14000. If car buyers cannot tell which cars are good and which
are bad, what will the market equilibrium look like? correct answers Only the bad cars will sell,
at a price of $14000.
What is spinning? correct answers the practice of giving potential clients opportunities to buy
initial public offerings to win their business
The problem that lazy investors may be able to mooch off the work of more diligent investors
who make the effort to investigate which firms are most profitable is known as correct answers a
free-rider problem.
The lowering of costs that results from a firm using your information to offer you multiple
services is called correct answers economies of scope.
The decision of how leveraged a bank's balance sheet ought to be falls under what sector of bank
management? correct answers capital adequacy
, The decision of what loans to make falls under what sector of bank management? correct
answers assets
Savings deposits fall under what category on a bank's balance sheet? correct answers liabilities
What common activity of a bank manager recently became obsolete? correct answers Adjusting
the balance sheet at the end of the day to ensure that reserve requirements are met.
What does it mean when a bank becomes insolvent? correct answers Capital is negative.
Suppose a bank has the following balance sheet:
Assets Liabilities
Reserves $20 Demand Deposits $75
Securities $30 Borrowings $20
Loans $50 Capital $5
Suppose that reserves make a return of 1%, securities make a return of 2%, and loans make a
return of 10%. What is the bank's return on assets? correct answers 5.8%
Suppose a bank has the following balance sheet:
Assets Liabilities
Reserves $20 Demand Deposits $80
Securities $30 Borrowings $20
Loans $50 Capital $5
Suppose that reserves make a return of 1%, securities make a return of 2%, and loans make a
return of 10%. What is the bank's return on equity? correct answers 116%
Suppose that a bank is robbed of $100,000 of vault cash. What else would have to change on the
balance sheet? correct answers Capital would decrease by $100,000.
Interest rates have increased substantially after being close to their zero lower bound for many
years, and Jerome Powell recently signaled that rate increases would likely continue into the
future. How should a bank adjust its balance sheet in response to this? correct answers It should
have more rate-sensitive assets than rate-sensitive liabilities.
Secondary reserves are correct answers a bank's holdings of Treasuries.
Which of the following recent events in the United States is most likely to spark a financial
crisis? correct answers higher interest rates
Which of the following is an essential characteristic of a financial crisis that distinguishes them
from other macroeconomic crises? correct answers institutions that help to distinguish good
investments from bad investments fail
In which year did we have a financial crisis as opposed to just a recession? correct answers 2008
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