Asymmetric information problems increase costs to both borrowers and lenders. 1) True 2) False Question 6 (4 points) It is difficult to make profits selling information about stock market analysis due to the free rider problem. 1) True 2) False The free-rider problem affects decisions of participants in 1) the stock market. 2) internal finance 3) both of the above. 4) neither of the above. Question 4 (4 points) The majority of funds raised by firms is done through internal finance. 1) True 2) False Specialized lending helps lenders solve the problem of 1) adverse selection. 2) moral hazard. 3) transactions costs. 4) all of the above. Question 8 (4 points) The fraction of excess reserves is a measure of capital adequacy. 1) True 2) False Which of the following are off-balance-sheet activities? 1) taking loans from the Fed 2) issuing mortgage backed securities 3) both of the above 4) neither of the above Transactional costs are any and all costs associated with completing an exchange. 1) True 2) False Question 2 (4 points) Which are examples of external finance? 1) issuing commercial paper 2) stock sales 3) issuing bonds 4) all of the above If a bank borrows short and lends long, interest rate increases improve profitability. 1) True 2) False Question 12 (4 points) Interest rate risk is the chance that interest rates may increase, decreasing the value of bank assets. 1) True 2) False A bank can increase its level of reserves by 1) selling securities. 2) increasing borrowings. 3) calling loans. 4) all of the above. Question 10 ( 4 points) There is an opportunity cost to hold reserves and capital. 1) True 2) False