Exam 11: The Economics of Financial Intermediation

A) high transactions costs associated with financial intermediaries.
B) diseconomies of scale.
C) the ability of financial intermediaries to provide liquidity.
D) the ability of financial intermediaries to earn profits by raising transaction costs above the norm.

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A) the fact that large corporations generate large sales volumes.
B) the fact that large companies employ many people.
C) too little regulation by government.
D) the fact that the people making the operational decisions are usually not the owners.

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A) Pooling the resources of small savers
B) Formulating oversight regulations
C) Providing ways to diversify risk
D) Supplying liquidity

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A) the total cost of handling transactions falls as more transactions of different kinds are handled.
B) the cost per transaction falls as a larger volume of similar transactions are handled.
C) the cost per transaction increases as more transactions are handled.
D) the cost per transaction decreases regardless of the number of transactions.

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A) opportunistic behavior.
B) economies of scale.
C) diminishing marginal returns.
D) information asymmetry.

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The advertisement will attract both high...

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A) a form of adverse selection.
B) when stockholders are not acting in the best interest of managers.
C) a form of moral hazard.
D) due to managers not being able to monitor stockholder behavior.

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A) increase the cost of financial transactions but offset these higher costs by providing safekeeping of customer funds.
B) provide handling of payments but usually less efficiently than other firms.
C) reduce the cost of financial transactions.
D) provide safety of resources, but only for the large borrowing customers who can afford it.

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A) small borrowers and small savers.
B) large borrowers but not small savers.
C) society in the net, but small savers bear much of the cost.
D) small borrowers but not small savers.

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Deflation is troubling because it aggrav...

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A) adverse selection.
B) moral hazard.
C) the free-rider problem.
D) symmetric information.

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