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Money, Banking, and Financial Markets Practice Test: Financial Structure
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The structure of the financial market broadly divides into the Money Market and Capital Market. The money market caters to short-term fund requirements, while the capital market takes care of long-term funding needs. The structure of the financial market is based solely on bonds and equities. The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less. It enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow... Show more
Money, Banking, and Financial Markets Practice Test: Financial Structure
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25 Questions

1. Equity contracts
2. Which of the following is not a benefit to an individual purchasing a mutual fund?
3. In the United States, the government agency requiring that firms that sell securities in public markets adhere to standard accounting principles and disclose information about their sales, assets, and earnings is the
4. One way of describing the solution that high net worth provides to the moral hazard problem is to say that it
5. Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.
6. Credit-rating agencies may face a conflict of interest because they
7. The ________ problem helps to explain why the private production and sale of information cannot eliminate ________.
8. Of the following sources of external finance for American nonfinancial businesses, the least important is
9. Although debt contracts require less monitoring than equity contracts, debt contracts are still subject to ________ since borrowers have an incentive to take on more risk than the lender would like.
10. The presence of economies of scope may benefit financial institutions but may create potential costs from ________.
11. One reason China has been able to grow so rapidly even though its financial development is still in its early stages is
12. The problem created by asymmetric information before the transaction occurs is called________, while the problem created after the transaction occurs is called ________.
13. The analysis of how asymmetric information problems affect economic behavior is called________ theory.
14. Collateralized debt is also know as
15. The Sarbanes-Oxley Act of 2002 increased supervisory oversight by
16. A conflict of interest arises in investment banking because the banks are attempting to simultaneously serve two client groups
17. The free-rider problem occurs because
18. The concept of adverse selection helps to explain all of the following except
19. That only large, well-established corporations have access to securities markets
20. That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries
21. The fact that the credit-rating agencies both advised clients on how to structure the financial instruments that paid out cash flows from subprime mortgages and also rated these financial instruments contributed to the
22. Since they require less monitoring of firms, ________ contracts are used more frequently than________ contracts to raise capital.
23. As information technology improves, the lending role of financial institutions such as banks should ________.
24. Because information is scarce
25. A problem for equity contracts is a particular type of ________ called the ________ problem.

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