ANSWER OUTLINE
ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 99
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, February 2, 2:10 P.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
Please FILL IN YOUR NAME on Side 1 of the accompanying General Purpose
NCS Answer Sheet and use a #2 pencil to MARK YOUR ANSWERS on Side 1 of this
Answer Sheet to the following five multiple choice questions. [Answer sheets
can be obtained from Sue Streeter in Heady 382 if you missed the class
handout.]
1. Which of the following are short-term financial instruments?
A. A negotiable certificate of deposit
B. A banker's acceptance
C. A U.S. Treasury bond
D D. Both A and B of the above
E. Both B and C of the above
2. Financial intermediaries
A. reduce transactions and information costs for borrowers and savers
B. improve the lot of the small saver
C. are involved in the process of indirect finance
D D. do each of the above
E. do only A and B of the above
3. Studies of the major developed countries show that
A A. external financing for corporations is dominated by financial
intermediaries
B. external financing for corporations is dominated by security issues
C. financial intermediaries avoid lending to corporations
D. none of the above is consistent across countries
4. Which of the following statements are true?
A A. Most common stocks are traded over-the-counter, although the
largest corporations have their shares traded on organized
stock exchanges such as the New York Stock Exchange
B. Since a corporation gets a share of the broker's commission, a
corporation acquires new funds whenever its securities are sold
C. Capital market securities are usually more widely traded than
short-term securities and so tend to be more liquid
D. All of the above are true.
5. The problem created by asymmetric information before the transaction
occurs is called _________, while the problem created after the
transaction occurs is called _____________.
A A. adverse selection; moral hazard
B. moral hazard; adverse selection
C. costly state verification; free-riding
D. free-riding; costly state verification
