19. Financial intermediaries exist because small investors cannot efficiently ________.
A) diversify their portfolios
B) gather all relevant information
C) assess credit risk of borrowers
D) advertise for needed investments
E) all of the above.
Answer: E Difficulty: Easy
Rationale: The individual investor cannot efficiently and effectively perform any of the tasks above without more time and knowledge than that available to most individual investors.
20. Firms that specialize in helping companies raise capital by selling securities are called ________.
A) commercial banks
B) investment banks
C) savings banks
D) credit unions
E) all of the above.
Answer: B Difficulty: Easy
Rationale: An important role of investment banks is to act as middlemen in helping firms place new issues in the market.
21. Financial assets ______.
A) directly contribute to the country's productive capacity
B) indirectly contribute to the country's productive capacity
C) contribute to the country's productive capacity both directly and indirectly
D) do not contribute to the country's productive capacity either directly or indirectly
E) are of no value to anyone
Answer: B Difficulty: Easy
Rationale: Financial assets indirectly contribute to the country's productive capacity because these assets permit individuals to invest in firms and governments. This in turn allows firms and governments to increase productive capacity.