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problem1. When interest rates are high, lenders may not want to make loans because of:

[A]      Costly state verification.

[B]      Moral hazard.

[C]      Adverse selection.

[D]      The principal-agent problem.

problem2. A venture capital firm:

[A]      Allows equity shares of the new firm to be sold in the marketplace.

[B]      Increases the size of the moral hazard problem.

[C]      Has no say in the management of the new firm.

[D]      Pools resources to help entrepreneurs start new firms.

problem3. An incentive compatible debt contract:

[A]      Provide incentives for the borrower to make interest payments.

[B]      Increases the size of the moral hazard problem.

[C]      Aligns the incentives of the borrower with those of the lender.

[D]      Provide incentives for lenders to pick a certain industry.

problem4. Which of the following describe the ‘lemons problem’

[A]       Sellers have more information than buyers and more transactions occur.

[B]      Buyers have more information than sellers and few transactions occur.

[C]      Buyers have more information than sellers and more transactions occur.

[D]      Sellers have more information than buyers and few transactions occur.

Basic Finance, Finance

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