1) The current structure of financial markets can be best understood as the result of attempts by financial market participants to

A) Adapt to continually changing government regulations.

B) Deal with the great number of small firms in the United States.

C) Reduce transaction costs.

D) Cartelize the provision of financial services.

2) The analysis of how asymmetric information problems affect economic behavior is called ________ theory.

A) Agency

B) Parallel

C) Principal

D) Moral hazard

3) By bundling share purchases of many investors together mutual funds can take advantage of economies of scale and thereby lower

A) Adverse selection.

B) Moral hazard.

C) Transactions costs.

D) Diversification.

4) The "lemons problem" exists because of

A) Asymmetric information.

B) Economies of scale.

C) Rational expectations.

D) Transactions costs.

5) The ________ problem helps to explain why the private production and sale of information cannot eliminate ______.

A) Free-rider; moral hazard

B) Free-rider; adverse selection

C) Principal-agent; adverse selection

D) Principal-agent; moral hazard

Answer rating: 100% (QA)

1 C Reduce transaction c... View the full answer