1) Which of the following is not a benefit to an individual purchasing a mutual fund? A)...
Question:
1) 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
2) Financial intermediaries' low transaction costs allow them to provide ________ services that make it easier for customers to conduct transactions.
A) Liquidity
B) Conduction
C) Transcendental
D) Equitable
3) If bad credit risks are the ones who most actively seek loans then financial intermediaries face the problem of
A) Moral hazard.
B) Adverse selection.
C) Free-riding.
D) Costly state verification.
4) Adverse selection 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 seek a loan for highly risky investments.
D) The lender's inability to restrict the borrower from changing his behavior once given a loan.
5) Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.
A) Debt deflation
B) Adverse selection
C) Free-rider
D) Principal-agent
Expert Answer:
