1.The acquisition of a public or private company that is financed largely by debt is referred to as a leveraged buyout, or LBO. Which of these statements is true of the LBO craze of the 1980s?

a.

The amount of the purchase price funded by debt was as high as 90%.

b.

The amount of the purchase price funded by debt was typically less than 50%.

c.

The amount of the purchase price funded by debt was legally capped at 70%.

d.

The amount of the purchase price that could be funded by debt was legally capped at 40%.

2 points

QUESTION 44

1.Imagine that Roland goes to his bank and deposits $10,000 in cash into his savings account. The bank, wanting to use those funds to generate revenue for itself, will look to make a loan with this cash. An important determinant of how much of that $10,000 the bank can lend is the

a.

interest rate the bank will charge on the loan that it makes.

b.

required reserve ratio.

c.

interest rate the bank is paying Roland on his deposit balance.

d.

bank's net worth.

2 points

QUESTION 45

1.The business of banking solves the problem of

a.

a liquidity mismatch with savers desiring liquidity and borrowers desiring illiquid loans.

b.

a liquidity mismatch with savers desiring illiquidity and borrowers desiring liquid loans.

c.

adverse selection.

d.

moral hazard.

2 points

QUESTION 46

1.Some of the most important central banks in the world include

a.

the People's Bank of China, the European Central Bank, and the Federal Reserve.

b.

the Deutsche Bundesbank, the People's Bank of China, and the Federal Reserve.

c.

the Federal Reserve, the European Central Bank, and the Bank of England.

d.

the People's Bank of China, the Federal Reserve, and the Bank of England.