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- In Minsky's theory, all other things being equal, greater measures of leverage in investment result in, O a. Higher profits, with certainty O b. Lower profitability O c. Higher expected profitability and higher riskslling MOST of the financial funds in USA. The following are true general statements about Financial Instruments and Trading Markets, EXCEPT: Stocks are considered more risky type of investmet than Bonds. O Stock holders are residual claimants. Stocks are only traded in the Primary Markets. In the Secondary Markets securities are continuously resold.5 2.Asymmetric Information. Now let’s examine the impact of asymmetric information on thecreditmarket equilibrium. Specifically, in this question we assume that Anderson is not able toobserveor enforce the project that the borrower chooses. As a result, the loan contract can onlyspecifythe interest rate (not the project). Everything else remains as in problem 1.a.What type of asymmetric information problem does Anderson face? Write a shortexplanation justifying your answer.
- The Eastern Caribbean Securities Exchange is a: O a. Central Bank O b. Financial Market O c. Regulatory Agency O d. Financial InstrumentThe conflict of preferences occurs because O a. Customers of firms have different needs to those assumed by suppliers O b. Primary investors want low-cost liquidity and certainty, and the ultimate borrowers want long term risk-bearing capital O .Primary investors want a completely risk-free investment with high returns and borrowing firms offer only high risk/low return as their securities O d. Preference shares do not carry a sufficiently high dividend, given their risk(1) Why would a company’s financial managers wantto pay attention to the federal funds rate? (2) Ratherthan promising to support any too-big-to-fail banks,could the federal government instead simply warneveryone that doing business with one of these firmsis risky? Why or why not?
- 4-4The federal government (1) encouraged the development of the savings and loanindustry, (2) virtually forced the S&L industry to make long-term, fixed-interest-rate mortgages, and (3) forced S&Ls to obtain most of their capital asdeposits that are withdrawable on demand. a.Would the S&Ls be better off if rates are expected to increase or to decreasein the future? b.Would the S&L industry be better off if the individual institutions sold theirmortgages to federal agencies and then collected servicing fees or if theinstitutions held the mortgages that they originated?Which of the following are typical federal fund loan denominations? Check all that apply. O $250,000 $750,000 $8,000,000 $11,000,000 Which of the following are properties of federal funds? Check all that apply. O The interbank loan volume outstanding is less than $100 billion. Most loan transactions have a maturity of 1 to 7 days. Commercial banks are the most active participants in the federal funds market. The federal funds rate is usually lower than the risk-free T-bill rate.The key characteristic of financial intermediaries is that they Select one: O a. are always liquid. O b. will lend to anyone. O c. simultaneously borrow and lend. O d. provide risk-sharing services. O e. buy a diversified portfolio of assets.
- Economics Consider a firm in the DC that sells it output to a retailer in the FC. To hedge the FX risk the DC firm could (select all that are true): O Write a call option DC to FC at today's spot FX. O Exercise a call option DC to FC at today's spot rate O Purchase a fututes contract for DC to FC at today's spot rate. O Purchase a futures contract for FC to DC to offset lost sales O Write a put option for FC to DC at today's spot rate O Purchase a call option for FC to DC at today's spot rateWhich of the following is not a role of financial intermediaries? O A. Maturity intermediation B. Diversification C. Reducing contracting (transaction) costs D. Providing payment mechanisms E, None of the aboveBond rating agencies like Moody's and Fitch specialize in: OA assessing the credit and default risk of issuers. O B. assessing the credit, default and liquidity risk of issuers. OC. assessing the liquidity risk of issuers. O D. guaranteeing a specific interest rate payment by bond issuers to investors.
