The potential for a financial breakdown at large institutions to spread throughout the financial system is called
A) a systemic risk.
B) a too-large-to-fail problem.
C) an averse selection problem.
D) a moral hazard.
A
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Wendy's must decide whether to grow its own potatoes for French fries. Growing potatoes is a very different process from running a fast-food restaurant. Based on this information alone, should Wendy's grow its own potatoes?
a. No, because Wendy's managers have bounded rationality. b. Yes, because Wendy's managers have bounded rationality. c. No, because there is a small number of potato suppliers. d. Yes, because there is a small number of potato suppliers. e. No, because it is easy to observe the quality of potatoes.
A bond's price is sensitive to changes in
a. the interest rate. b. the accepted rate of return on investment. c. investor confidence in the stability and credit worthiness of the firm. d. All of the above are correct.