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© 2014 Pearson Canada Inc.#
If all the students in your class pool their money in order to buy one bond and share its return
accordingly, in order to eliminate transaction costs, this is an example of ____.
A) economies of scale
B) cooperative game
C) risk sharing
D) moral hazard
Answer: A
Diff: 2 Type: MC Page Ref: 164
Skill: Applied
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
Financial intermediaries are able to reduce transaction costs through ____ and ____.
A) economies of scale, expertise
B) restrictive covenants, unsecured debts
C) moral hazard, adverse selection
D) economies of scale, regulation
Answer: A
Diff: 2 Type: MC Page Ref: 164
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
Liquidity service offered by financial intermediary make it ____.
A) easier for customers to conduct transactions
B) more difficult to undertake indirect financial transactions
C) easier to monitor restrictive covenants
D) more difficult to conduct transactions
Answer: A
Diff: 1 Type: MC Page Ref: 164
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
How does a mutual fund lower transactions costs through economies of scale?
Answer: The mutual fund takes the funds of the individuals who have purchased shares and uses
them to purchase bonds or stocks. Because the mutual fund will be purchasing large blocks of
stocks or bonds they will be able to obtain them at lower transactions costs than the individual
purchases of smaller amounts could.
Diff: 2 Type: SA Page Ref: 164
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard