Question 1

What factors usually cause an increase in moral hazard and adverse selection?

Accepted Answer

The answer of What factors usually cause an increase in...

Question 2

What conflicts of interest can arise in credit-rating agencies?

Accepted Answer

The answer of What conflicts of interest can arise in...

Question 3

What conflicts of interest can arise in investment banking?

Accepted Answer

The answer of What conflicts of interest can arise in...

Question 4

What issues do critics cite when discussing why Sarbanes-Oxley has led to a decline in U.S. capital markets?

Accepted Answer

The answer of What issues do critics cite when discussing...

Question 5

The Global Legal Settlement of 2002 arose out of a lawsuit brought by New York Attorney General Eliot Spitzer against the ten largest investment banks.

Accepted Answer

The Global Legal Settlement of 2002 did arise out of a lawsuit brought by New York Attorney General Eliot Spitzer against the ten largest investment banks.

Question 6

Why should we be concerned about conflicts of interest in the financial services industry?

Accepted Answer

The answer of Why should we be concerned about conflicts...

Question 7

The Sarbanes-Oxley Act of 2002 and the Global Legal Settlement of 2002 both have the potential to reduce economies of scope.

Accepted Answer

Both the Sarbanes-Oxley Act of 2002 and the Global Legal Settlement of 2002 increased regulatory compliance costs for companies, which can reduce their ability to realize economies of scope through diversification and expansion.

Question 8

The U.S. has more lawyers per capita than any other country in the world. It is also among the richest countries in the world. Explain why these two facts may not be mere coincidence.

Accepted Answer

The answer of The U.S. has more lawyers per capita...

Question 9

Explain how the "lemons" problem could cause financial markets to fail.

Accepted Answer

The answer of Explain how the "lemons" problem could cause...

Question 10

Evaluate the major provisions of Sarbanes-Oxley and the Global Legal Settlement as remedies for conflict of interest problems.

Accepted Answer

The answer of Evaluate the major provisions of Sarbanes-Oxley and...

Question 11

What is the principal-agent problem?

Accepted Answer

The answer of What is the principal-agent problem?...

Question 12

What conflicts of interest can arise in accounting firms?

Accepted Answer

The answer of What conflicts of interest can arise in...

Question 13

What are economies of scale in financial transactions? How can financial intermediaries achieve these economies?

Accepted Answer

The answer of What are economies of scale in financial...

Question 14

The Sarbanes-Oxley Act of 2002 established a Public Company Accounting Oversight Board (PCAOB), overseen by the SEC, to supervise accounting firms and ensure that audits are independent and controlled for quality.

Accepted Answer

This statement is true. The Sarbanes-Oxley Act did establish the PCAOB to oversee accounting firms and ensure audit quality.

Question 15

Due to criticisms of rating agencies following the default of many subprime products, the SEC prohibited credit rating agencies from structuring the same products that they rate.

Accepted Answer

The answer of Due to criticisms of rating agencies following...

Question 16

What is the free-rider problem? Describe some situations that this problem creates.

Accepted Answer

The answer of What is the free-rider problem? Describe some...

Question 17

What facts about financial structure can be explained by moral hazard?

Accepted Answer

The answer of What facts about financial structure can be...

Question 18

Distinguish between adverse selection and moral hazard.

Accepted Answer

The answer of Distinguish between adverse selection and moral hazard....

Question 19

What facts about financial structure can be explained by adverse selection?

Accepted Answer

The answer of What facts about financial structure can be...

Quiz 7: Why Do Financial Institutions Exist

What factors usually cause an increase in moral hazard and adverse selection?

What conflicts of interest can arise in credit-rating agencies?

What conflicts of interest can arise in investment banking?

What issues do critics cite when discussing why Sarbanes-Oxley has led to a decline in U.S. capital markets?

The Global Legal Settlement of 2002 arose out of a lawsuit brought by New York Attorney General Eliot Spitzer against the ten largest investment banks.

Why should we be concerned about conflicts of interest in the financial services industry?

The Sarbanes-Oxley Act of 2002 and the Global Legal Settlement of 2002 both have the potential to reduce economies of scope.

The U.S. has more lawyers per capita than any other country in the world. It is also among the richest countries in the world. Explain why these two facts may not be mere coincidence.

Explain how the "lemons" problem could cause financial markets to fail.

Evaluate the major provisions of Sarbanes-Oxley and the Global Legal Settlement as remedies for conflict of interest problems.

What is the principal-agent problem?

What conflicts of interest can arise in accounting firms?

What are economies of scale in financial transactions? How can financial intermediaries achieve these economies?

The Sarbanes-Oxley Act of 2002 established a Public Company Accounting Oversight Board (PCAOB), overseen by the SEC, to supervise accounting firms and ensure that audits are independent and controlled for quality.

Due to criticisms of rating agencies following the default of many subprime products, the SEC prohibited credit rating agencies from structuring the same products that they rate.

What is the free-rider problem? Describe some situations that this problem creates.

What facts about financial structure can be explained by moral hazard?

Distinguish between adverse selection and moral hazard.

What facts about financial structure can be explained by adverse selection?