Lecture 6, Problem Set Flashcards
(13 cards)
An example of the ________ problem would be if Brian borrowed money
from Mary in order to purchase a used car and instead took a trip to Crete
using those funds.
A) moral hazard
The ________ problem helps to explain why the private production and
sale of information cannot eliminate ________.
C) free-rider; adverse selection
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 their investment activities
Since they require less monitoring of firms, ________ contracts are used
more frequently than ________ contracts to raise capital
D) debt; equity
One way the venture capital firm avoids the free-rider problem is by…
– A) …prohibiting the sale of equity in the firm to anyone except the
venture capital firm.
– B) …prohibiting members from serving on the board of directors.
– C) …prohibiting the borrowing firm from replacing management.
– D) …requiring collateral equal to the value of the borrowed funds.
A) …prohibiting the sale of equity in the firm to anyone except the
venture capital firm
If a bank has £10 million of checkable deposits, a required reserve ratio
of 10%, and it holds £2 million in reserves, then it will not have enough
reserves to support a deposit outflow of…
A) …£1.2 million
When £1 million is deposited at a bank, the required reserve ratio is 20%,
and the bank chooses not to make any loans but to hold excess reserves
instead, then, in the bank’s final balance sheet…
A) …the assets at the bank increase by £1 million
When £1 million is deposited at a bank, the required reserve ratio is 20%,
and the bank chooses not to make any loans but to hold excess reserves
instead, then, in the bank’s final balance sheet…
…the assets at the bank increase by £1 million
If a bank has £200,000 of checkable deposits, a required reserve ratio of
20%, and it holds £80,000 in reserves, then the maximum deposit
outflow it can sustain without altering its balance sheet is…
A) …£50,000.
A bank will want to hold more excess reserves (everything else equal)
when…
B) …brokerage commissions on selling bonds increase.
Holding all else constant, when a bank receives the funds for a deposited
check…
A) …cash items in the process of collection fall by the amount of the
check
When you deposit a £50 bill in the Security Pacific National Bank…
– A) …its liabilities decrease by £50.
– B) …its assets increase by £50.
– C) …its reserves decrease by £50.
– D) …its cash items in the process of collection increase by £50
B) …its assets increase by £50
The total amount of required reserves in the banking system is equal to
the ________ the required reserve ratio and checkable deposits.
C) product of
