Econ 206 Midterm 2 Study Guide Graded A+

moral hazard {Ans: A Diff: 2 Type: MC Skill: Recall}8.1 Identify eight basic facts about the global financial system 7) Of the following sources of external finance for Canadian nonfinancial businesses, the least important is ________. A) loans from banks B) stocks C) bonds and commercial paper D) loans from other financial intermediaries {Ans: B Diff: 1 Type: MC Skill: Recall}8.2 Summarize how transaction costs affect financial intermediaries 4) 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 {Ans: C Diff: 2 Type: MC Skill: Recall}8.6 Summarize the methods used to reduce moral hazard in debt contracts 11) A key finding of the economic analysis of financial structure is that ________. A) the existence of the free-rider problem for traded securities helps to explain why banks play a predominant role in financing the activities of businesses B) while free-rider problems limit the extent to which securities markets finance some business activities, nevertheless the majority of funds going to businesses are channeled through securities markets C) given the great extent to which securities markets are regulated, free-rider problems are not of