Provide an example of how a bank achieves lower cost in making a large loan to a company than could be achieved without the bank.
What will be an ideal response?
If a company needed to borrow a large amount, without a financial intermediary (bank) they would conceivably have to approach many individuals, borrowing small amounts from each. This would be costly not only in time but also each individual would require a separate contract and perhaps negotiate different interest rates. The bank can have a lawyer, who specializes in contracts, draw up one contract that is fairly complete and can be used for most loans. Since there is only one transaction only one contact is needed (less time) and only one contract at one price.
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Jerry is interested in purchasing a washing machine. The price of the machine is $500. The probability that the machine will break down is 20% every year
If the machine breaks down in the first year and Jerry holds a warranty, he receives a new washing machine worth $400 that year. If the machine breaks down after two years and he holds a warranty, he receives a new machine that is worth $300 after the second year. The price of a warranty for two years is $100. The market interest rate is 5%. Is buying the warranty a good investment for Jerry? Explain your answer. Show all the necessary calculations.
Which of the following is considered to be the major cause of the recession of 2001?
a. A decrease in defense spending b. A spike in oil prices and the collapse of the housing bubble c. A decline in oil prices and the collapse of the housing bubble d. Federal Reserve policy e. None of the above.
The trilemma refers to all the following EXCEPT:
a. a fixed exchange rate. b. international capital mobility. c. monetary policy autonomy. d. price controls.
(Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:
A. monopolization. B. tying contracts. C. price-fixing. D. horizontal mergers.