ECON320Chapter 8 Practice Test Professor C. James Hueng
1)True or Fal? Indirect finance, which involves the activities of financial intermediaries, is many times more
important than direct finance, in which business rai funds directly from lenders in financial markets.
A)True.B)Fal.
2)True or Fal? For business in the United States, stocks are a relatively unimportant source of finance for their
activities.
A)True.B)Fal.
3)True or Fal? For business in Japan, issuing marketable curities is the primary way that they finance their
activities.
A)True.B)Fal.
4)True or Fal? For business in the United States, non-bank loans are the most important source of external
funds to finance their activities.
A)True.B)Fal.
5)Which of the following statements concerning external sources of financing for nonfinancial business in the
United States are true?
A)Stocks are a far more important source of finance than are bonds.
B)Stocks and bonds, combined, supply less than one-half of the external funds.
C)Financial intermediaries such as banks are the least important source of external funds for business.
D)Since 1970, more than half of the new issues of stock have been sold to American houholds.
6)Which of the following statements concerning external sources of financing for nonfinancial business in the
United States are true?
A)Issuing marketable curities is the primary way that they finance their activities.
jmkB)Bonds are the least important source of external funds to finance their activities.
C)Stocks are a relatively unimportant source of finance for their activities.
D)Selling bonds directly to the American houhold is a major source of funding for American business.
东莞南博7)With regard to external sources of financing for nonfinancial business in the United States, which of the
following are accurate statements?
A)Marketable curities account for a larger share of external business financing in the United States than in
most other countries.
B)Since 1970, most of the newly issued corporate bonds and commercial paper have been sold directly to
American houholds.
C)Direct finance accounts for more than 50 percent of the external financing of American business.
D)Smaller business almost always rai funds by issuing marketable curities.
8)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)good faith money.
9)If you default on your auto loan, your car will be repossd becau it has been pledged as ________ for the
loan.
plantcellA)interest B)collateral C)dividend D)commodity
10)A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.
A)residual claimant B)risk hedge
C)restrictive barrier D)restrictive covenant
11)A clau in a mortgage loan contract requiring the borrower to purcha homeowner's insurance is an example
of a
A)proscriptive covenant.B)prescriptive covenant.
C)restrictive covenant.D)constraint-impod covenant.
12)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 American business.
B)Issuing marketable curities is not the primary way business finance their operations.
C)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which business rai funds directly from lenders in financial markets.
D)Banks are the most important source of external funds to finance business.
13)Which of the following is not one of the eight basic puzzles about financial structure?
asonsA)The financial system is among the most heavily regulated ctors of the economy.
B)Issuing marketable curities is the primary way business finance their operations.
C)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which business rai funds directly from lenders in financial markets.
D)Banks are the most important source of external funds to finance business.
14)Which of the following is not one of the eight basic puzzles about financial structure?
A)Only large, well-established corporations have access to curities markets to finance their activities.
B)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which business rai funds directly from lenders in financial markets.
C)Collateral is a prevalent feature of debt contracts for houholds, but not business since they have many
alternative sources for funds.
D)Banks are the most important source of external funds to finance business.
15)Which of the following is not one of the eight basic puzzles about financial structure?
A)Debt contracts are typically extremely complicated legal documents that place substantial restrictions on
the behavior of the borrower.
B)Indirect finance, which involves the activities of financial intermediaries, is many times more important
than direct finance, in which business rai funds directly from lenders in financial markets.
C)Collateral is a prevalent feature of debt contracts for both houholds and business.
D)New curity issues are the most important source of external funds to finance business.
16)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 ctors of the economy.
B)Only large, well-established corporations have access to curities markets to finance their activities.
C)Direct finance, in which business rai funds directly from lenders in financial markets, is many times
more important than indirect finance, which involves the activities of financial intermediaries.
decade什么意思D)Debt contracts are typically extremely complicated legal documents that place substantial restrictions on
the behavior of the borrower.
在线词典17)The reduction in transactions costs per dollar of investment as the size of transactions increas is
A)discounting.B)economies of scale.
C)economies of trade.D)diversification.
18)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)diversification
19)A borrower who takes out a loan usually has better information about the potential returns and risk of the
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investment projects he plans to undertake than does the lender. This inequality of information is called
A)moral hazard.B)asymmetric information.
C)noncollateralized risk.D)adver lection.
20)If bad credit risks are the ones who most actively ek loans and, therefore, receive them from financial
intermediaries, then financial intermediaries face the problem of
A)moral hazard.B)adver lection.
C)free-riding.D)costly state verification.
21)The problem created by asymmetric information before the transaction occurs is called ________, while the
problem created after the transaction occurs is called ________.
A)adver lection; moral hazard B)moral hazard; adver lection
C)costly state verification; free-riding D)free-riding; costly state verification
22)The prence of ________ in financial markets leads to adver lection and moral hazard problems that
interfere with the efficient functioning of financial markets.
A)noncollateralized risk B)free-riding
C)asymmetric information D)costly state verification
23)The "lemons problem" exists becau of
A)transactions costs.B)economies of scale.
C)rational expectations.D)asymmetric information.
24)Becau of the "lemons problem" the price a buyer of a ud car pays is
A)equal to the price of a lemon.B)less than the price of a lemon.
C)equal to the price of a peach.D)between the price of a lemon and a peach.
25)The free-rider problem occurs becau
A)people who pay for information u it freely.B)people who do not pay for information u it.
C)information can never be sold at any price.D)it is never profitable to produce information.
26)The ________ problem helps to explain why the private production and sale of information cannot eliminate
________.
A)free-rider; adver lection B)free-rider; moral hazard
C)principal-agent; adver lection D)principal-agent; moral hazard
27)Government regulations require publicly traded firms to provide information, reducing
A)transactions costs.B)the need for diversification.
C)the adver lection problem.D)economies of scale.
28)A lesson of the Enron collap is that government regulation
A)always fails.
B)can reduce but not eliminate asymmetric information.
C)increas the problem of asymmetric information.
D)should be reduced.
29)Adver lection is a problem associated with equity and debt contracts arising from
A)the lender's relative lack of information about the borrower's potential returns and risks of his investment
activities.
B)the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
C)the borrower's lack of incentive to ek a loan for highly risky investments.
D)the lender's inability to restrict the borrower from changing his behavior once given a loan.
30)Becau of the adver lection problem,
diaoyu islandA)good credit risks are more likely to ek loans causing lenders to make a disproportionate amount of loans
to good credit risks.
B)lenders may refu loans to individuals with high net worth, becau of their greater proclivity to "skip
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C)lenders are reluctant to make loans that are not cured by collateral.
D)lenders will write debt contracts that restrict certain activities of borrowers.
31)In the United States, the government agency requiring that firms that ll curities in public markets adhere to
standard accounting principles and disclo information about their sales, asts, and earnings is the
A)Federal Communications Commission.B)Federal Trade Commission.
C)Securities and Exchange Commission.D)Federal Rerve System.
32)That most ud cars are sold by intermediaries (i.e., ud car dealers) provides evidence that the
intermediaries
A)have been afforded special government treatment, since ud car dealers do not provide information thatdisappear
is valued by consumers of ud cars.
B)are able to prevent potential competitors from free-riding off the information that they provide.
C)have failed to solve adver lection problems in this market becau "lemons" continue to be traded.
D)have solved the moral hazard problem by providing valuable information to their customers.
33)The concept of adver lection helps to explain all of the following except
A)why firms are more likely to obtain funds from banks and other financial intermediaries, rather than from
the curities markets.
B)why indirect finance is more important than direct finance as a source of business finance.
C)why direct finance is more important than indirect finance as a source of business finance.
D)why the financial system is so heavily regulated.
34)Analysis of adver lection indicates that financial intermediaries, especially banks,
A)have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more
important source of business finance than is direct finance.
B)despite their success in overcoming free-rider problems, nevertheless play a minor role in moving funds
to corporations.
C)provide better-known and larger corporations a higher percentage of their external funds than they do to
newer and smaller corporations which rely to a greater extent on the new issues market for funds.
D)must buy curities from corporations to diversify the risk that results from holding non-tradable loans.
35)The problem of adver lection helps to explain
A)why firms are more likely to obtain funds from banks and other financial intermediaries, rather than from
curities markets.
B)why collateral is an important feature of consumer, but not business, debt contracts.
C)why direct finance is more important than indirect finance as a source of business finance.
D)why lenders refu loans to individuals with high net worth.
36)The concept of adver lection helps to explain
A)why collateral is not a common feature of many debt contracts.
B)why large, well-established corporations find it so difficult to borrow funds in curities markets.
C)why financial markets are among the most heavily regulated ctors of the economy.
D)why stocks are the most important source of external financing for business.
