Question

What is the chief difference between debt and equity​ finance?

A. Debt finance is cheaper than equity finance.

B.Debt finance involves a fixed stream of​ payments, equity finance involves a piece of profit streams.

C.Debt finance is a much better deal for the borrower.

D.Debt finance suggests that the lender does much better when the state of the world is one where the borrower does extremely well​ (as opposed to just somewhat​ well).

In modern day​ markets, what is the rationale for having deposits issued in a foreign​ currency?

A.There are often lower​ (or no) reserve requirements on such accounts.

B.Someone who consumes many goods denominated in dollars can minimize exchange rate risk by holding accounts in euros.

C.These accounts are not traceable by the home government.

D.The failure of purchasing power parity can make this very profitable.

What institution reduces the risk of bank runs in the​ U.S.?

A.​S&Ls

B.Federal Reserve System

C.FDIC

D.Congress

Answer 1

1. Option B.Debt finance involves a fixed stream of​ payments, equity finance involves a piece of profit streams.

Explanation: Debt pays a fixed interest payment. Equity pays on the basis of the profit earned.

2. Option B.Someone who consumes many goods denominated in dollars can minimize exchange rate risk by holding accounts in euros.

Explanation: Doing so reduces the exchange rate risk.

3. FDIC

Explanation: Federal Deposit Insurance Corporation insures bank deposits in the USA.