Multiple Choice
1) When a corporation
forgoes paying a dividend to expand its business, it is engaging in
a)
internal finance.
b)
external finance.
c)
both of the above.
d)
neither of the above.
(a, easy, section 2)
2) When Nikki
mortgages her home, she is engaged in
a)
internal finance.
b)
external finance.
c)
both of the above.
d)
neither of the above.
(b, easy, section 2)
3) Which of the
following is an example of direct finance?
a)
A home buyer takes a mortgage.
b)
You borrow money from a friend for lunch.
c)
Your parents buy life insurance.
d)
All of the above.
(b, easy, section 5)
4) Which of the
following does not involve a financial intermediary?
a)
a credit card purchase
b)
buying stock online
c)
buying renter’s insurance
d)
all of the above
(d, easy, section 6)
5) When Google issued
stock to raise money, it was engaged in
a)
internal finance.
b)
external finance.
c)
both of the above.
d)
neither of the above.
(b, easy, section 2)
6) The problem for
lenders, that highest risk borrowers tend to be the most eager to take loans,
is an example of
a)
adverse selection.
b)
moral hazard.
c)
both of the above.
d)
neither of the above.
(a, easy, section 3)
7) The problem for
lenders, that a borrower has the incentive to take chances once the loan is
made, is an example of
a)
adverse selection.
b)
moral hazard.
c)
both of the above.
d)
neither of the above.
(b, easy, section 3)
8) The tendency of
people with renter’s insurance to leave the apartment door unlocked is an
example of a(n) _____ problem for insurance companies.
a)
adverse selection
b)
moral hazard
c)
both of the above
d)
neither of the above
(b, easy, section 3)
9) People with few
valuables won’t want property insurance. This is an example of a(n) _____
problem for insurance companies.
a)
adverse selection
b)
moral hazard
c)
both of the above
d)
neither of the above
(a, easy, section 3)
10) Banks might be
more efficient than individual lenders due to
a) returns to scale.
b) expertise in accounting tasks.
c) expertise in advertising to borrowers.
d) all of the above.
(d, easy, section 2)
11) Banks might be
more efficient than individual lenders due to
a) returns to scale.
b) their access to the stock market.
c) increasing returns on capital.
d) all of the above.
(a, easy, section 2)
12) Which of the
following is a decentralized market?
a) NYSE
b) CBOT
c) OTC market
d) All of the above
(c, medium, section 5)
13) Which of the
following is a centralized market?
a)
NYSE
b)
CBOT
c)
FTSE
d)
All of the above
(d, medium, section 5)
14) Mutual funds
provide
a) diversification to small stock market
investors.
b) expertise in insurance contracts.
c) home loans.
d) none of the above.
(a, easy, section 6)
15) Which of the
following regularly hold stock portfolios?
a) pension funds
b) brokers
c) mutual funds
d) all of the above
(d, easy, section 6)
16) Which of the
following is NOT a financial intermediary?
a) mutual fund
b) pension fund
c) insurance company
d) all of the above
(d, easy, section 6)
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