Financial Markets And Institutions Set 12
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This set of Financial Markets and Institutions Multiple Choice Questions & Answers (MCQs) focuses on Financial Markets And Institutions Set 12
Q1 | Investment banking was developed by
- Japan
- England
- USA
- None of the above
Q2 | The presence of transaction costs in financial markets explains, in part, why
- financial intermediaries and indirect finance play such an important role in financial markets.
- equity and bond financing play such an important role in financial markets.
- corporations get more funds through equity financing than they get from financial intermediaries.
- direct financing is more important than indirect financing as a source of funds.
Q3 | Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of
- poorly informed consumers.
- standardization.
- economies of scale.
- their market power.
Q4 | The presence of in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.
- noncollateralized risk
- free-riding
- asymmetric information
- costly state verification
Q5 | When the lender and the borrower have different amounts of information regarding a transaction,__________
- asymmetric information
- adverse selection
- moral hazard
- fraud
Q6 | 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
Q7 | 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
Q8 | The concept of adverse selection helps to explain
- which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets.
- why indirect finance is more important than direct finance as a source of business finance.
- why direct finance is more important than indirect finance as a source of business finance.
- only (A) and (B) of the above.
Q9 | Adverse selection is a problem associated with equity and debt contracts arising from
- 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.
- the borrower’s lack of incentive to seek a loan for highly risky investments.
- none of the above.
Q10 | When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the
- moral hazard problem.
- adverse selection problem.
- shirking problem.
- free-rider problem.
Q11 | Financial institutions expect that
- moral hazard will occur, as the least desirable credit risks will be the ones most likely to seek out loans.
- opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans.
- borrowers will commit moral hazard by taking on too much risk, and this is what drives financial institutions to take steps to limit moral haza
Q12 | 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
- moral hazard.
- adverse selection.
- bad luck.
- financial panics.
Q13 | In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called
- comparative informational disadvantage.
- asymmetric information
- variant information.
- caveatvenditor.
Q14 | The largest depository institution at the end of 2001 was
- life insurance companies.
- pension funds.
- state retirement funds.
- none of the above.
Q15 | The value of assets held by commercial banks in 2001 was $6.7 trillion dollars, making commercial banks the
- second most important sector of financial intermediaries after mutual funds.
- second most important sector of financial intermediaries after lifeinsurance companies.
- second most important sector of financial intermediaries after privatepension funds.
- largest sector of financial intermediaries.
Q16 | Which of the following financial intermediaries are depository institutions?
- A savings and loan association
- A commercial bank
- A credit union
- All of the above
Q17 | Which of the following is a contractual savings institution?
- A life insurance company
- A credit union
- A savings and loan association
- A mutual fund
Q18 | Which of the following are not investment intermediaries?
- A life insurance company
- A pension fund
- A mutual fund
- Only (A) and (B) of the above
Q19 | The government regulates financial markets for three main reasons:
- to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors.
- to improve control of monetary policy, to ensure that financial intermediaries earn a normal rate of return, and to increase the information available to investors.
- to ensure that financial intermediaries do not earn more than the normal rate of return, to ensure soundness of the financial system, and to improve control of monetary policy.
- to ensure soundness of financial intermediaries, to increase the information available to investors, and to prevent financial intermediaries from earning less than the normal rate of return.
Q20 | Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a
- bank holiday.
- financial panic.
- financial disintermediation.
- financial collapse.
Q21 | The market value size of outstanding instruments of capital markets depends on factors
- primary cash flows
- number of issued securities
- market prices of securities
- both b and c
Q22 | When maturities of liabilities and assets are mismatched and risk incurred by financial intermediaries then this risk is classified as
- interest rate risk
- channel rate risk
- economic risk
- issuance risk
Q23 | The depository institutions includes
- mutual funds
- commercial banks and thrifts
- savings banks
- credit unions
Q24 | The major liabilities of the commercial banks are
- junk bonds
- deposits
- loans
- swap bonds
Q25 | The money market where securities are issued by governments to obtain funds for short term is classified as
- money market instruments
- capital market instruments
- counter instruments
- long term instruments