True or False

Stocks are the most important source of external finance for American businesses T F

In the united states , bonds are a more important source of external finance for business than are stock T F

Most American households own financial market securities T F

Financial intermediaries benefit savers by reducing transaction costs T F

Banks avoid the free-rider problem by primarily making private loans rather than purchasing securities that are traded in financial markets T F

Collateral , which property promised to the lender if the borrower defaults, reduces the consequences of adverse selection because it reduces the lenders losses in the case of default T F

Firms with higher net worth are the ones most likely to default T F

Venture capitalists, unlike banks, are able to reduce moral hazard problems by placing individuals on the board of directors of the firm receiving the loan T F

On the way of describing the solution that high net worth provides to the moral hazard problem is to say that it makes the debt contract incentive compatible T F

The requirement that the borrower keep her collateral in good condition, as one of the conditions to receiving a loan, is called restrictive covenant. T F

The FDIC argues that the too-big to fail policy protects the soundness of the banking system, since the failure of a very large bank makes it more likely that a major financial disruption will occur T F

Large banks are actually put a competitive disadvantage relative to small banks as a result of the FDICs to- big to- fail policy T F

A financial innovation that made it easier for high-rolling banks to raise funds was brokered Deposits T F