5) Modern hedge funds make investments: A) to reduce losses for a client's portfolio B) for groups of small investors C) to speculate on various asset classes D) only in very liquid and high quality assets ko 6) Asymmetric information in the financial system means that: A) borrowers know more than lenders B) lenders know more than borrowers C) borrowers and lenders have access to only some information D) borrowers and lenders have the same information 7) Banks use repurchase agreements to: A) pay their federal tax liabilities B) underwrite consumer loans C) borrow funds from financial intermediaries for liquidity D) hedge against price fluctuations on long-term bonds 8) Money market mutual funds: A) hold portfolios of common stocks B) hold portfolios of government and corporate bonds C) can borrow money to increase earnings D) hold portfolios of short-term liquid assets ) Hedges in the derivatives market are primarily interested in: . A) providing liquidity to users B) reducing the price risk of their assets C) managing their default risk D) betting on anticipated changes in prices 10) What is the largest category of commercial bank assets? A) loans B) reserves C) securities D) foreign exchange 11) If the value of a bank loan declines due to default, what is the corresponding reduction in a bank's balance sheet? A) Borrowings are reduced by the amount of the decline in the value of the loan. B) Equity is reduced by the amount of the decline in the value of the loan. C) Deposits are reduced by the amount of the decline in the value of the loan. D) Reserves are reduced by the amount of the decline in the value of the loan