Question1. By taking advantage of economies of scale and developing expertise, financial intermediaries overcome the problem of:
[A] Free-riding.
[B] Adverse selection.
[C] High transaction costs.
[D] Moral hazard.
Question2: Which of the following causes a financial crisis to move into the debt deflation phase?
[A] Increase in uncertainty
[B] Unanticipated decline in the price level
[C] Increase in interest rates
[D] Stock market decline
Question3: Conflicts of interest arise when
[A] Financial institutions use their expertise to become more efficient.
[B] Financial institutions use their expertise to realize economies of scale
[C] Financial institutions provide multiple services with competing interests
[D] Financial institutions provide information to both buyers and sellers of financial products
Question4:. How can the collapse of major corporations such as Enron and MCI WorldCom contribute to financial crises?
[A] The crash of their stocks values could reduce the value of the shares held by banks.
[B] The collapse of their stocks values could deter banks from underwriting future corporation stock issues and reduce financial activity.
[C] The collapse of these companies could wipe out investor wealth and increase loan defaults and market uncertainty.
[D] The collapse of these companies could encourage other firms to declare bankruptcy.