Chapter 16

Financial System Design

D1Factual
1. The two major types of financial systems are the __________________-oriented systems. A) federal- and local B) banking- and markets C) sec rities- and e! ities ") contrib tor- and stockholder Answer# B

D1Factual
$. The %nited &tates and __________________ are two major markets-oriented systems. A) 'ermany B) (apan C) )rance ") the %nited *ingdom Answer# "

D1Factual
+. 'ermany and __________________ are two major banking-oriented systems. A) the %nited *ingdom B) (apan C) )rance ") the %nited &tates Answer# B

D1Factual
,. The %nited &tates and the %nited *ingdom are two major __________________-oriented systems. A) sec rities B) e! ities C) banking ") markets Answer# "

190

191-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Factual
2. (apan and 'ermany are two major __________________-oriented systems. A) sec rities B) e! ities C) banking ") markets Answer# C

D2Interpretive
3. Asymmetric information problems are worse the __________________ the borrowing firm/ since there is __________________ p blicly a1ailable information abo t those firms. A) larger4 more B) larger4 less C) smaller4 more ") smaller4 less Answer# "

D2Interpretive
5. Asymmetric information problems are less se1ere the __________________ the borrowing firm/ since there is __________________ p blicly a1ailable information abo t those firms. A) larger4 more B) larger4 less C) smaller4 more ") smaller4 less Answer# A

D2Interpretive
6. Beca se of their __________________ liability/ corporate stockholders are more concerned with __________________. A) limited4 s ccess than fail re B) limited4 fail re than s ccess C) nlimited4 s ccess than fail re ") nlimited4 fail re than s ccess Answer# A

D1Factual
7. Chapter 13 on 8)inancial &ystem "esign9 calls the asymmetric information problem disc ssed in earlier chapters the __________________ conflict. A) manager-stockholder B) stockholder-lender C) manager-lender ") profit-risk Answer# B

Chapter 13)inancial &ystem "esign 192

D1Factual
1:. __________________ occ rs beca se firm owners ha1e an incenti1e to nderstate their tr e riskiness to borrow on a more fa1orable basis. A) ;oral ha<ard B) Ad1erse selection C) ;anager-stockholder conflict ") ;anager-lender conflict Answer# B

D1Factual
11. __________________ occ rs beca se firms ha1e an incenti1e to become riskier after their loans are f nded. A) ;oral ha<ard B) Ad1erse selection C) ;anager-stockholder conflict ") ;anager-lender conflict Answer# A

D1Interpretive
1$. The stockholder-lender conflict generally becomes is greater A) the smaller the firm. B) the larger the firm. C) the more the firm borrows from banks. ") the less the firm borrows from banks. Answer# A

D1Interpretive
1+. The manager-stockholder conflict generally becomes worse A) the smaller the firm. B) the larger the firm. C) the more the firm borrows from banks. ") the less the firm borrows from banks. Answer# B

D1Interpretive
1,. =n pri1ately held firms the manager-stockholder conflict is A) worse than in the larger firm. B) the same as it is in the larger firm. C) less se1ere than in the larger firm. ") there is no manager-stockholder conflict beca se the manager is the owner. Answer# B

193-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Interpretive
12. =n closely held firms/ the manager-stockholder conflict is A) worse than in the larger firm beca se there is no incenti1e for the indi1id al stockholder to monitor managers. B) the same as in p blicly held firms. C) less se1ere than in the larger firm beca se there is an incenti1e for the major stockholder to monitor managers. ") less prono nced than in large p blic companies/ beca se the manager is the owner. Answer# "

D2Interpretive
13. >hen the owners of a company hire f ll-time e?ec ti1es to make the day-to-day decisions/ this __________________ the __________________ problem. A) alle1iates4 stockholder-lender B) alle1iates4 manager-stockholder C) e?acerbates4 stockholder-lender ") e?acerbates4 manager-stockholder Answer# "

D2Interpretive
15. >hen there are many tho sands of small stockholders in a company/ for each the cost of monitoring manager performance is well __________________ the benefits of doing so/ which helps __________________ the manager-stockholder problem. A) abo1e4 alle1iates B) abo1e4 brings on C) below4 alle1iates ") below4 brings on Answer# B

D2Interpretive
16. The fewer the stockholders in a corporation the __________________ likely they are to be moti1ated to monitor the corporation@s management/ th s the __________________ the se1erity of the manager-stockholder conflict. A) more4 greater B) more4 fewer C) less4 greater ") less4 fewer Answer# B

D1Factual
17. Af the two conflicts/ __________________ getBs) more se1ere the larger the firm. A) the stockholder-lender conflict B) manager-stockholder conflict C) both ") neither Answer# B

Chapter 13)inancial &ystem "esign 194

D1Factual
$:. Af the two conflicts/ __________________ more se1ere as the firm becomes smaller. A) the shareholder-lender conflict gets B) the manager-shareholder conflict gets C) both get ") neither gets Answer# A

D2Interpretive
$1. Conflict resol tion of the stockholder-lender conflict in larger banking-oriented firms is most effecti1ely accomplished by A) financial intermediation Bmonitoring). B) financial intermediation Bownership consolidation). C) corporate go1ernance. ") Cone of the abo1e Answer# B

D2Interpretive
$$. Conflict resol tion of the stockholder-lender conflict in smaller market-oriented firms is most effecti1ely accomplished by A) financial intermediation Bmonitoring). B) financial intermediation Bownership consolidation). C) rating agencies. ") managerial compensation. Answer# A

D2Interpretive
$+. Conflict resol tion of the manager-stockholder conflict in larger market-oriented firms is most effecti1ely accomplished by A) financial intermediation Bmonitoring). B) financial intermediation Bownership consolidation). C) rating agencies. ") managerial compensation. Answer# "

D2Interpretive
$,. The stockholder-manager conflict in a large p blicly held firm is manifested in all of the following ways e?cept A) the managers implement 1ery low-risk strategies that ha1e 1ery low ret rns. B) the managers implement strategies that ma?imi<e the 1al e of the firm. C) managers p rs e strategies that ma?imi<e firm si<e rather than the 1al e of the firm. ") the managers attempt to ma?imi<e their salaries. Answer# B

195-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Factual
$2. __________________ firms are treated similarly in financial systems aro nd the world in the handling of their __________________ conflict. A) &mall4 stockholder-lender B) &mall4 manager-stockholder C) Darge4 stockholder-lender ") Darge4 manager-stockholder Answer# A

D1Factual
$3. The risk-shifting problem tends to be __________________ for __________________ firms than for __________________ firms. A) greater4 small4 large B) greater4 large4 small C) the same4 large4 small ") Cone of the abo1e Answer# A

D1Factual
$5. &mall firms borrow from 8monitoring-intensi1e9 financial intermediaries in __________________ financial systems. A) banking-oriented B) markets-oriented C) banking- and markets-oriented ") socialist Answer# C

D1Interpretive
$6. The two types of financial systems tend to treat A) small firms alike. B) large firms alike. C) both small and large firms alike. ") neither small nor large firms alike. Answer# A

D1Interpretive
$7. Bond rating agencies are important in the channeling of f nds to __________________ firms in __________________-oriented systems. A) small4 banking B) small4 markets C) large4 banking ") large4 markets Answer# "

Chapter 13)inancial &ystem "esign 196

D2Factual
+:. =n 'ermany/ banks ____________________ shares in the large firms they lend to/ which ____________________ lender-stockholder conflict. A) are not allowed to own4 is their way of minimi<ing B) are not allowed to own4 gi1es rise to C) own a considerable bloc of4 is their way of minimi<ing ") own a considerable bloc of4 gi1es rise to Answer# C

D1Factual
+1. =n banking-oriented systems/ handling of the manager-stockholder conflict in large firms is thro gh A) rating agencies. B) the potential for takeo1ers. C) management ownership of the firm. ") bank ownership of the firm. Answer# "

D1Factual
+$. =n markets-oriented systems/ handling of the manager-stockholder conflict in large firms is thro gh A) rating agencies. B) the potential for takeo1ers. C) management ownership of the firm. ") bank ownership of the firm. Answer# B

D1Factual
++. =n markets-oriented systems an nder-performing 8entrenched9 management is often replaced by A) &0C reg lators. B) a hostile takeo1er. C) stockholders electing a new board of directors to fire the managers. ") the bank that owns the firm firing them. Answer# B

D1Factual
+,. The 8corporate takeo1er market9 plays a part in handling the conflict between management and ____________________ in ____________________-oriented financial systems. A) bankers4 markets B) bankers4 banking C) stockholders4 markets ") stockholders4 banking Answer# C

197-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Factual
+2. &tock options for corporate managers plays a part in handling the conflict between management and ____________________ in ____________________-oriented financial systems. A) bankers4 markets B) bankers4 banking C) stockholders4 markets ") stockholders4 banking Answer# C

D1Factual
+3. The ____________________ 8Ea sbank9 handles all the e?ternal financing for a firm. A) (apanese B) 'erman C) &wedish ") British Answer# B

D1Factual
+5. The dominance of banks in 'ermany comes at the e?pense of ____________________ markets there. A) sec rities B) go1ernment bond C) cons mer borrowing ") foreign e?change Answer# A

D2Factual
+6. 'erman banks are able to control a significant n mber of 'erman firms by A) making large syndicated loans. B) ownership of shares alone. C) ownership of shares and ha1ing pro?y 1oting power o1er the shares in their c stody. ") sheer si<e in the lending market. Answer# C

D2Factual
+7. =n 'ermany the three largest banks or 'rossbanken are A) commercial banks. B) sa1ings banks. C) cooperati1e banks. ") speciali<ed banks. Answer# A

Chapter 13)inancial &ystem "esign 198

D1Factual
,:. The 'erman bond market A) is 1ery large by international standards. B) is 1ery small by international standards. C) is abo t the same si<e as the %.&. bond market. ") shr nk considerably in the 177:s. Answer# B

D1Factual
,1. The financial systems of ____________________ ha1e major firms working all their e?ternal financing thro gh a single bank. A) (apan and the %nited *ingdom B) the %nited &tates and the %nited *ingdom C) 'ermany and the %nited *ingdom ") (apan and 'ermany Answer# "

D2Factual
,$. %nlike 'ermany/ (apan has A) a s ppressed corporate debt market. B) laws against banks holding corporate stock. C) a large stock market. ") close ties between a firm and a single bank. Answer# C

D1Factual
,+. The two nations that ha1e gone f rthest with 8 ni1ersal banking9 are A) the %nited &tates and the %nited *ingdom B) the %nited *ingdom and 'ermany. C) 'ermany and (apan. ") the %nited &tates and (apan. Answer# B

D1Factual
,,. Bank ownership of corporate stock is 8disco raged9 by reg lators in A) the %nited &tates B) the %nited *ingdom C) 'ermany. ") (apan. Answer# B

D1Factual
,2. Commercial bank ownership of corporate stock is prohibited by reg lators in A) the %nited &tates B) the %nited *ingdom C) 'ermany. ") (apan. Answer# A

199-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Factual
,3. As of the end of 177, the co ntry in o r s r1ey with the smallest stock market in dollar terms was A) the %nited &tates. B) the %nited *ingdom. C) (apan. ") 'ermany. Answer# "

D1Factual
,5. As of the end of 177,/ which of the co ntries in o r s r1ey had the closest match in si<e between its stock and banking marketsF A) The %nited *ingdom B) The %nited &tates C) (apan ") 'ermany Answer# B

D1Factual
,6. As of the end of 177,/ which of the co ntries in o r s r1ey had the largest proportion of stock held by indi1id alsF A) The %nited *ingdom B) The %nited &tates C) (apan ") 'ermany Answer# B

D1Factual
,7. As of the end of 177, which of the co ntries in o r s r1ey had the smallest proportion of stock held by foreignersF A) The %nited *ingdom B) The %nited &tates C) (apan ") 'ermany Answer# C

D1Factual
2:. As of the end of 177, which of the co ntries in o r s r1ey had the largest proportion of stock held by the go1ernmentF A) The %nited *ingdom. B) The %nited &tates. C) (apan ") 'ermany Answer# "

Chapter 13)inancial &ystem "esign 200

D1Factual
21. The co ntry in which a form of ind strial organi<ation in which a gro p of companies own stock in each other and has a bank that owns stock in each firm is A) the %nited *ingdom. B) the %nited &tates. C) (apan. ") 'ermany. Answer# C

D1Factual
2$. The co ntry in which banks are classified as city banks/ regional banks/ and special p rpose financial instit tions is A) the %nited *ingdom. B) the %nited &tates. C) (apan. ") 'ermany. Answer# C

D1Factual
2+. The co ntry in which two of the categories of banks are clearing banks and merchant banks is A) the %nited *ingdom. B) the %nited &tates. C) (apan. ") 'ermany. Answer# C

D1Factual
2,. >hich of the following banks is similar to a %.&. in1estment bankF A) City banks B) 'rossbanken C) ;erchant banks ") Cooperati1e banks Answer# C

D2Factual
22. Beca se of a reg latory en1ironment that enco rages foreign participation and competition in financial ser1ices/ the domestic markets in the ____________________ are not really distinct from the foreign markets. A) the %nited *ingdom B) the %nited &tates C) (apan ") 'ermany Answer# C

201-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D2Interpretive
23. G)inancial distressG is more easily handled in a ____________________-oriented financial system/ in which ownership of the firm tends to be spread among ____________________ shareholders than in the other type of system. A) markets4 more B) markets4 fewer C) banking4 more ") banking4 fewer Answer# "

D1Factual
25. =n $::$/ ____________________ had the largest dollar 1al e of mergers and ac! isitions. A) the %nited &tates B) the %nited *ingdom C) 'ermany ") (apan Answer# A

D1Factual
26. )irm ownership in the %nited *ingdom is largest for A) indi1id als. B) financial instit tions H agents. C) financial instit tions H ownership.control. ") nonfinancial corporations. Answer# B

D2Interpretive
27. =t is not s rprising to see a rather ____________________ 1ol me of mergers and ac! isitions in 'ermany gi1en how its ____________________ conflicts are resol1ed. A) high4 shareholder-lender B) high4 manager-stockholder C) low4 shareholder-lender ") low4 manager-stockholder Answer# "

D2Interpretive
3:. =t is not s rprising to see a rather ____________________ 1ol me of mergers and ac! isitions in (apan gi1en its ____________________-oriented financial system. A) high4 banking B) high4 markets C) low4 banking ") low4 markets Answer# C

Chapter 13)inancial &ystem "esign 202

D1Interpretive
31. =t is not s rprising to see a rather ____________________ 1ol me of mergers and ac! isitions in the %nited &tates gi1en its ____________________-oriented financial system. A) high4 banking B) high4 markets C) low4 banking ") low4 markets Answer# B

D2Interpretive
3$. Banks are better at sol1ing the stockholder-lender conflict than rating agencies when they A) are allowed to hold a s bstantial ownership stake in the borrowing firm. B) steer clear of holding any ownership stake in the borrowing firm. C) operate in markets-oriented financial systems. ") iss e indi1id ally-appro1ed loans rather than lines of credit. Answer# A

D1Interpretive
3+. &tocks and bonds iss ed in banking-oriented systems are rather ____________________ beca se they are traded ____________________. A) li! id4 fre! ently B) li! id4 infre! ently if at all C) illi! id4 fre! ently ") illi! id4 infre! ently if at all Answer# "

D1Interpretive
3,. &tocks and bonds iss ed in markets-oriented financial systems are rather ____________________ beca se they are traded ____________________. A) li! id4 fre! ently B) li! id4 infre! ently if at all C) illi! id4 fre! ently ") illi! id4 infre! ently if at all Answer# A

D1Interpretive
32. The price the %nited &tates and the %nited *ingdom pay for ha1ing rather li! id sec rities markets is A) fl ct ations in sec rities prices. B) nresol1ed stockholder-lender and manager-stockholder conflicts. C) allowing banks to hold s bstantial ownership shares in large firms. ") sh tting large firms o t of those sec rities markets. Answer# B

203-itter.&ilber.%dell Money, Banking, and Financial Markets / 0le1enth 0dition

D1Interpretive
33. 'ermany and (apan pay a higher price for raising capital beca se of A) ha1ing rather illi! id sec rities markets. B) nresol1ed stockholder-lender and manager-stockholder conflicts. C) allowing banks to hold s bstantial ownership shares in large firms. ") sh tting large firms o t of those sec rities markets. Answer# A

D2Interpretive
35. 0astern 0 rope is an information-____________________ en1ironment/ which ____________________ the se of sec rities markets for large-firm financing. A) poor4 enco rages B) poor4 disco rages C) rich4 enco rages ") rich4 disco rages Answer# B

D2Interpretive
36. Cewly-pri1ati<ed firms in 0astern 0 rope re! ire ____________________ in1estor monitoring/ which s ggests the relati1e desirability of a ____________________-oriented financial system. A) hea1y4 banking B) hea1y4 markets C) little or no4 banking ") little or no4 markets Answer# A