Question 1

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen.A depreciation of the domestic currency

Accepted Answer

A) results in increases in the firm's indebtedness in domestic currency terms,even though the value of their assets remains unchanged. 
B) results in an increase in the value of the firm's assets. 
C) means that the firm does not owe as much on their foreign debt. 
D) strengthens their balance sheet in terms of the domestic currency. 
A) results in increases in the firm's indebtedness in domestic currency terms,even though the value of their assets remains unchanged. 
B) results in an increase in the value of the firm's assets. 
C) means that the firm does not owe as much on their foreign debt. 
D) strengthens their balance sheet in terms of the domestic currency.

Question 2

Although the subprime mortgage market problem began in the United States,the first indication of the seriousness of the crisis began in

Accepted Answer

A) Europe. 
B) Australia. 
C) China. 
D) South America. 
A) Europe. 
B) Australia. 
C) China. 
D) South America.

Question 3

If a borrower takes out a $200 million loan in a repo agreement and is asked to post $220 million of mortgage-backed securities as collateral,the "haircut" is

Accepted Answer

A) 5%. 
B) 10%. 
C) 20%. 
D) 50%. 
A) 5%. 
B) 10%. 
C) 20%. 
D) 50%.

Question 4

The economic hardship resulting from a financial crises is severe,however,there are also social consequences such as

Accepted Answer

A) increased crime. 
B) difficulty getting a loan. 
C) currency devaluations. 
D) loss of output. 
A) increased crime. 
B) difficulty getting a loan. 
C) currency devaluations. 
D) loss of output.

Question 5

As "haircuts" increased during 2007-2009,financial institutions found that to borrow the same loan amount now required ________ collateral.

Accepted Answer

A) less 
B) no 
C) more 
D) default-free 
A) less 
B) no 
C) more 
D) default-free

Question 6

A ________ pays out cash flows from subprime mortgage-backed securities in different tranches,with the highest-rated tranch paying out first,while lower ones paid out less if there were losses on the mortgage-backed securities.

Accepted Answer

A) Collateralized debt obligation (CDO) 
B) Adjustable-rate mortgage 
C) Negotiable CD 
D) Discount bond 
A) Collateralized debt obligation (CDO) 
B) Adjustable-rate mortgage 
C) Negotiable CD 
D) Discount bond

Question 7

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies ________ allowed to borrow abroad and merchant banks ________.

Accepted Answer

A) were not; could borrow abroad 
B) were not; could not borrow abroad 
C) were; could borrow abroad 
D) were; could not borrow abroad 
A) were not; could borrow abroad 
B) were not; could not borrow abroad 
C) were; could borrow abroad 
D) were; could not borrow abroad

Question 8

Financial crises generally develop along two basic paths:

Accepted Answer

A) mismanagement of financial liberalization/globalization and severe fiscal imbalances. 
B) stock market declines and severe fiscal imbalances. 
C) mismanagement of financial liberalization/globalization and stock market declines. 
D) stock market declines and unanticipated declines in the value of the domestic currency. 
A) mismanagement of financial liberalization/globalization and severe fiscal imbalances. 
B) stock market declines and severe fiscal imbalances. 
C) mismanagement of financial liberalization/globalization and stock market declines. 
D) stock market declines and unanticipated declines in the value of the domestic currency.

Question 9

Argentina's financial crisis was due to

Accepted Answer

A) poor supervision of the banking system. 
B) a lending boom prior to the crisis. 
C) fiscal imbalances. 
D) lack of expertise in screening and monitoring borrowers at banking institutions. 
A) poor supervision of the banking system. 
B) a lending boom prior to the crisis. 
C) fiscal imbalances. 
D) lack of expertise in screening and monitoring borrowers at banking institutions.

Question 10

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

Accepted Answer

A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks. 
A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks.

Question 11

________ is a process of bundling together smaller loans (like mortgages)into standard debt securities.

Accepted Answer

A) Securitization 
B) Origination 
C) Debt deflation 
D) Distribution 
A) Securitization 
B) Origination 
C) Debt deflation 
D) Distribution

Question 12

All of the following might create problems from financial liberalization in emerging countries except

Accepted Answer

A) ineffective screening of borrowers. 
B) limits on risk-taking. 
C) lax government supervision of banks. 
D) lenders failure to monitor borrowers. 
A) ineffective screening of borrowers. 
B) limits on risk-taking. 
C) lax government supervision of banks. 
D) lenders failure to monitor borrowers.

Question 13

A sharp depreciation of the domestic currency after a currency crisis leads to

Accepted Answer

A) higher inflation. 
B) lower import prices. 
C) lower interest rates. 
D) decrease in the value of foreign currency-denominated liabilities. 
A) higher inflation. 
B) lower import prices. 
C) lower interest rates. 
D) decrease in the value of foreign currency-denominated liabilities.

Question 14

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

Accepted Answer

A) negative 
B) positive 
C) affirming 
D) advancing 
A) negative 
B) positive 
C) affirming 
D) advancing

Question 15

The two key factors that trigger speculative attacks on emerging market currencies are

Accepted Answer

A) deterioration in bank balance sheets and severe fiscal imbalances. 
B) deterioration in bank balance sheets and low interest rates abroad. 
C) low interest rates abroad and severe fiscal imbalances. 
D) low interest rates abroad and rising asset prices. 
A) deterioration in bank balance sheets and severe fiscal imbalances. 
B) deterioration in bank balance sheets and low interest rates abroad. 
C) low interest rates abroad and severe fiscal imbalances. 
D) low interest rates abroad and rising asset prices.

Question 16

Debt deflation occurs when

Accepted Answer

A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness. 
B) rising interest rates worsen adverse selection and moral hazard problems. 
C) lenders reduce their lending due to declining stock prices (equity deflation)that lowers the value of collateral. 
D) corporations pay back their loans before the scheduled maturity date. 
A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness. 
B) rising interest rates worsen adverse selection and moral hazard problems. 
C) lenders reduce their lending due to declining stock prices (equity deflation)that lowers the value of collateral. 
D) corporations pay back their loans before the scheduled maturity date.

Question 17

The growth of the subprime mortgage market led to

Accepted Answer

A) increased demand for houses and helped fuel the boom in housing prices. 
B) a decline in the housing industry because of higher default risk. 
C) a decrease in home ownership as investors chose other assets over housing. 
D) decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages. 
A) increased demand for houses and helped fuel the boom in housing prices. 
B) a decline in the housing industry because of higher default risk. 
C) a decrease in home ownership as investors chose other assets over housing. 
D) decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages.

Question 18

Factors likely to cause a financial crisis in emerging market countries include

Accepted Answer

A) severe fiscal imbalances. 
B) decreases in foreign interest rates. 
C) a foreign exchange crisis. 
D) too strong oversight of the financial industry. 
A) severe fiscal imbalances. 
B) decreases in foreign interest rates. 
C) a foreign exchange crisis. 
D) too strong oversight of the financial industry.

Question 19

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

Accepted Answer

A) nearly 50% of GDP. 
B) about 10% of GDP. 
C) almost 90% of GDP. 
D) nearly 25% of GDP. 
A) nearly 50% of GDP. 
B) about 10% of GDP. 
C) almost 90% of GDP. 
D) nearly 25% of GDP.

Question 20

A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession.This process is called

Accepted Answer

A) debt deflation. 
B) moral hazard. 
C) insolvency. 
D) illiquidity. 
A) debt deflation. 
B) moral hazard. 
C) insolvency. 
D) illiquidity.

Exam 9: Financial Crises

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen.A depreciation of the domestic currency

Although the subprime mortgage market problem began in the United States,the first indication of the seriousness of the crisis began in

If a borrower takes out a $200 million loan in a repo agreement and is asked to post $220 million of mortgage-backed securities as collateral,the "haircut" is

The economic hardship resulting from a financial crises is severe,however,there are also social consequences such as

As "haircuts" increased during 2007-2009,financial institutions found that to borrow the same loan amount now required ________ collateral.

A ________ pays out cash flows from subprime mortgage-backed securities in different tranches,with the highest-rated tranch paying out first,while lower ones paid out less if there were losses on the mortgage-backed securities.

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies ________ allowed to borrow abroad and merchant banks ________.

Financial crises generally develop along two basic paths:

Argentina's financial crisis was due to

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

________ is a process of bundling together smaller loans (like mortgages)into standard debt securities.

All of the following might create problems from financial liberalization in emerging countries except

A sharp depreciation of the domestic currency after a currency crisis leads to

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

The two key factors that trigger speculative attacks on emerging market currencies are

Debt deflation occurs when

The growth of the subprime mortgage market led to

Factors likely to cause a financial crisis in emerging market countries include

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

A substantial decrease in the aggregate price level that reduces firms' net worth may stall a recovery from a recession.This process is called

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies allowed to borrow abroad and merchant banks .