Chap 9- Review ques Chap 7- Review ques In asymmetric information, we call the party who has information about her actions the 35. and the other, imperfectly informed party, the principal: trader B) C) saver, investor D) boss; employee 36. Moral hazard affects the car insurance market because A) insured drivers choose to behave in the best interests of the insurance company. B) insured drivers decide to drive even more carefully after buying car insurance drive carefully all car drivers choose to drive car promise to Which of the following (is)are responsible for high health insurance premiums? irational exuberance 37. III moral hazard A) lonly C) ll only Il and III D) 38. When buyers have less noination than sellers d exists about the quality of the product, a situation of moral hazard C) seller greed None of the answers are corect. D) B) Banks' methods to reduce asymmetric information problems include: information gathering. B) 39 A) including restrictive covenants in ontracts aking a lo All of the methods are used D) swindled its investors of about. During the financial crisis of 2008, the Ponzi scheme led by Charles Ponzi; S50 billion 40. A) lion C) Bemard Madoff $30 billion Stanford Financial; $4 billion DI 41. The main ratings agencies, financial outlood.'s, and Fitch, receive fees from companies for rating corporate stock C) rating corporate bonds D rating sovereign debt B) A project's expected value of a payment is: Expected payment = promised payment x probability of project success. Expected payment = promised payment + probability of project success. Expected payment = promised payment. Expected payment = promised payment x (1-probability of project success). 42. A B) Cl D) 43. Suppose you take out a loan to buy a small plane for your aerial sightsceing company and you pledge the plane as collateral. When the bank requires that the plane cannot be used in acrobatic competitions, it is effectively including a in the loan contract. B) negative collateral CI positive covenant positive collateral D with customers 44 op tn 4 adverse selection; long-term relationships fraud; a polite relationship D morl hazand short- insider trading; friendships firms buy ownership shares (i.e., a substantial share) in a new company, which is used to finance the company's expansion. 45. A) Speculative Predatory C) Venture capital D) zaca aca