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problem1. By taking advantage of economies of scale and developing expertise, financial intermediaries overcome the problem of:

[A]      Free-riding.

[B]      Adverse selection.

[C]      High transaction costs.

[D]      Moral hazard.

problem2: Which of the following causes a financial crisis to move into the debt deflation phase?

[A]      Increase in uncertainty

[B]      Unanticipated decline in the price level

[C]      Increase in interest rates

[D]      Stock market decline

problem3: Conflicts of interest arise when

[A]       Financial institutions use their expertise to become more efficient.

[B]      Financial institutions use their expertise to realize economies of scale

[C]      Financial institutions provide multiple services with competing interests

[D]      Financial institutions provide information to both buyers and sellers of financial products

problem4:. How can the collapse of major corporations such as Enron and MCI WorldCom contribute to financial crises?

[A]      The crash of their stocks values could reduce the value of the shares held by banks.

[B]      The collapse of their stocks values could deter banks from underwriting future corporation stock issues and reduce financial activity.

[C]      The collapse of these companies could wipe out investor wealth and increase loan defaults and market uncertainty.

[D]      The collapse of these companies could encourage other firms to declare bankruptcy.

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