Social Science Questions
Explore questions in the Social Science category that you can ask Spark.E!
The authors' analysis of adverse selection indicates that financial intermediaries in general, and banks in particular (because they hold a large fraction of nontraded loans),A) have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than direct finance.B) play a greater role in moving funds to corporations than do securities markets as a result of their ability to overcome the free-rider problem.C) provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations, which rely to a greater extent on the new issues market for funds.D) all of the above.E) only A and B of the above.
The principal-agent problemA) occurs when managers have more incentive to maximize profits than the stockholders-owners do.B) would not arise if the owners of the firm had complete information about the activities of the managers.C) in financial markets helps to explain why equity is a relatively important source of finance for American businesses.D) all of the above.E) only A and B of the above.
Which of the following provisions of legislation to deal with conflicts of interest does not increase the flow of information in financial markets?A) Requiring a firm's chief officers to certify its financial statements and other disclosuresB) Requiring investment banks to make their analysts' recommendations publicC) Requiring disclosure of off-balance-sheet transactionsD) Increasing resources available to the Securities and Exchange Commission to supervise financial markets
The Global Legal Settlement of 2002 arose out of a lawsuit brought by New York Attorney General Eliot Spitzer against the ten largest investment banks.
______ and ________ are important and explain half of firm-level management tail and some of US-Europe Management Gap
The concept of adverse selection helps explain why collateral is an important feature of many debt contracts.
The potential conflict of interest when a single accounting firm provides both auditing and consulting services is that the firm canA) charge higher fees to its audit clients and lower fees for its consulting services so it can expand its consulting business.B) charge higher fees to its consulting clients and lower fees for its audit services so it can expand its auditing business.C) provide unjustifiably favorable audit reviews for firms that are large clients for its consulting services.D) pressure its clients into paying high fees for both auditing and consulting services.
To address the moral hazard problem with equity contracts, investors can monitoring of the firm's activities. However, this remedy is often hampered byA) expensive monitoring technology.B) legal barriers.C) costly state verification. D) management intervention.
A clause in a mortgage loan contract requiring the borrower to purchase homeowner's insurance is an example ofA) a restrictive covenant.B) a collusive agreement between mortgage lenders and insurance companies.C) both A and B of the above. D) neither A nor B of the above.
Since firms issuing new securities pay to have these securities rated, the credit-rating agencies have incentive to ________ to attract more business.A) give favorable ratingsB) give impartial ratingsC) lower the fees they chargeD) practice spinning
How long is the Fixed Price Promise for "Time to think"?
A venture capital firm protects its equity investment from moral hazard through which of the following means?A) It places people on the board of directors to better monitor the borrowing firm's activities.B) It writes contracts that prohibit the sale of an equity investment to anyone but the venture capital firm.C) It prohibits the borrowing firm from replacing its management. D) It does both A and B of the above.E) It does both A and C of the above.
An advantage of providing multiple financial services within one financial institution is that itA) lowers information costs.B) develops broader long-term relationships with customers.C) both A and B of the above. D) none of the above.
The Sarbanes-Oxley Act of 2002 was passed in response to scandals in the investment banking industry.
Partly due to transaction costs, only around 50% of American households own any securities.
China is in an early state of development, with a per capita income that is still less than $10,000, one-fifth of the per capita income in the United States.
The principal-agent problem is an example of the adverse selection problem that can result from asymmetric information.
Which of the follow describes a security that is incentive compatible?A) The security creates incentives that are internally consistent and compatible with each other. B) The contract aligns the incentives of the investor with those of the issuer.C) This is just another way of stating that the security meets all SEC regulations.D) The contract aligns government and private sector incentives.
Collateral and net worth are effective tools for solving which asymmetric information problem(s)?A) adverse selectionB) moral hazard in equity contractsC) moral hazard in debt contracts D) A and C above are correctE) all of the above are correct
Adverse selection is an asymmetric information problem that occurs before the transaction, while moral hazard arises after the transaction occurs.