Module 2 Flashcards
Why do firms need the financial system?
to obtain long term funds, accommodate near term cash inflows and outflows, to facilitate short term cash management policies
What is the hurdle rate?
the cost of financing
Financial institutions are intermediaries that channel the savings of individuals, businesses, and governments into loans or investments.
true
Investment banks make loans that individuals and businesses use to buy goods or expand business operations, which in turn leads to more deposited funds that make their way to bank
false
The capital market is where firms obtain external short term financing.
false
The shadow banking system has escaped regulation primarily because it does not accept traditional bank deposits. As a result, many of the shadow banking institutions have been able to employ higher market, credit and liquidity risks, and have higher capital requirements.
false
From investors’ perspectives, the role of capital markets is to be an efficient market that allocates funds to their most productive uses.
true
a liquid market
has many available buyers and sellers and comparatively low transaction costs
Francis Galton’s discovery was
a diverse collection of independently deciding individuals is likely to make better value decisions than individuals or even experts
An efficient market (Links to an external site.) allocates funds to their most productive uses as a result of competition among wealth-maximizing investors and determines and publicizes prices that are believed to be close to their true value.
true
As described in “The 2008 Credit Crisis Visualized,” the financial system, commonly known as Wall Street, brings together
investors and homeowners (borrowers)
As described in “The 2008 Credit Crisis Visualized,” low interest rates
incentivized banks to increase leverage
Financial leverage is borrowing money to amplify the outcome of a ________.
deal
A collateralized debt obligation (CDO) bundles house payments and creates safe, okay, and risky investment vehildes.
true
From” The Inside Job” trailer - One criticism leveled at investment banks following the 2008 financial crisis was they were having massive private gains at the expense of public losses.
true
From “The Big Short,” the antagonists (those betting against the big banks) individually or together
sought to profit from the greed and stupdity of big banks, argued fraud has never worked (long term), argued there is not diffrence between stupid and illegal
Lending discrimination occurs when lenders base credit decisions on factors related to the applicant’s creditworthiness.
false
Lending discrimination happens when lenders base credit decisions on factors other than the borrower’s creditworthiness, including any of the protected classes defined under federal law. Today, what three federal laws offer protection against lending discrimination?
The Fair Housing Act, The Community Reinvestment Act, and the Equal Credit Opportunity Act
What practice made it impossible for many members of minority groups to qualify for loans to buy and improve homes?
redlining
Suppose Fidelity Investments requires applicants for its financial advisor positions to have the Chartered Financial Analyst (CFA) designation, hires no Black financial advisors, and very few Blacks have the CFA designation. The disparity in Fidelity’s hiring of White versus Black financial advisors is most likely attributable to
statistical discrimination
From Professor Charles’ youtube talk in the e-text. Suppose you have two labor markets with different sets of employers and with different average prejudice against Blacks levels. Therefore, discrimination against Blacks will be worse, as measured by wage gaps between Whites and Blacks, in the labor market with the highest average level of prejudice against Blacks.
false
