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This quiz consists of 5 multiple choice and 5 short answer questions through Chapters 4-7.

Multiple Choice Questions

1. The Lehman Brothers bank problem in 2008 occurred because the banks weren't what, according to the author?
(a) Paying out interest.
(b) Keeping enough money on hand.
(c) Analyzing risk.
(d) Using their own money.

2. What are negative results which occur while trying to achieve a goal for the common good?
(a) Abstract incentives.
(b) Ghost incentives.
(c) Unknown incentives.
(d) Perverse incentives.

3. In finance, what is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price?
(a) Trade-off.
(b) Portfolio.
(c) Bond.
(d) Option.

4. What is a contract between two parties that specifies conditions under which payments, or payoffs, are to be made between the parties?
(a) Futures contract.
(b) Exchange rate.
(c) Derivative.
(d) Legislation.

5. What is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames?
(a) Index fund.
(b) Money market.
(c) Floating exchange rate.
(d) Mutual fund.

Short Answer Questions

1. When was Douglas Ivester born?

2. What does the author refer to as a situation where individuals work in their own best interest, leading to an improved standard of living for society in general?

3. In what year did Douglas Ivester tell his sales team to pass free Coca-Cola around as the Berlin Wall toppled?

4. What is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect?

5. Michael Jensen refers to company stock options as what in Chapter 2?

(see the answer key)

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