Question 1

Like a CDO, a structured investment vehicle pays off cash flows from pools of assets, however, rather than long-term debt the structured investment vehicle backs ________.

Accepted Answer

A)  commercial paper 
B)  Treasury notes 
C)  corporate bonds 
D)  municipal bonds 
A)  commercial paper 
B)  Treasury notes 
C)  corporate bonds 
D)  municipal bonds

Question 2

A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a ________.

Accepted Answer

A)  financial crisis 
B)  fiscal imbalance 
C)  free-rider problem 
D)  "lemons" problem 
A)  financial crisis 
B)  fiscal imbalance 
C)  free-rider problem 
D)  "lemons" problem

Question 3

When there is a deterioration in financial institutions' balance sheets ________.

Accepted Answer

A)  economic activity contracts 
B)  asset prices increase 
C)  financial engineering takes place 
D)  financial globalization increases its pace 
A)  economic activity contracts 
B)  asset prices increase 
C)  financial engineering takes place 
D)  financial globalization increases its pace

Question 4

When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in ________.

Accepted Answer

A)  a contraction of economic activity 
B)  an economic boom 
C)  an increased opportunity for growth 
D)  a call for government regulation 
A)  a contraction of economic activity 
B)  an economic boom 
C)  an increased opportunity for growth 
D)  a call for government regulation

Question 5

The Irish government helped mitigate the financial crisis by ________.

Accepted Answer

A)  guaranteeing all deposits 
B)  privatizing the banking system 
C)  increasing short term borrowing 
D)  refusing to inject more capital into the failing system 
A)  guaranteeing all deposits 
B)  privatizing the banking system 
C)  increasing short term borrowing 
D)  refusing to inject more capital into the failing system

Question 6

Agency problems in the subprime mortgage market included all of the following except ________.

Accepted Answer

A)  homeowners could refinance their houses with larger loans when their homes appreciated in value 
B)  mortgage originators had little incentives to make sure that the mortgage is a good credit risk 
C)  underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back 
D)  the evaluators of securities, the credit rating agencies, were subject to conflicts of interest 
A)  homeowners could refinance their houses with larger loans when their homes appreciated in value 
B)  mortgage originators had little incentives to make sure that the mortgage is a good credit risk 
C)  underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back 
D)  the evaluators of securities, the credit rating agencies, were subject to conflicts of interest

Question 7

When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called ________.

Accepted Answer

A)  deflation 
B)  releveraging 
C)  capitulation 
D)  deleveraging 
A)  deflation 
B)  releveraging 
C)  capitulation 
D)  deleveraging

Question 8

What triggered the 2007-2008 financial crises ?

Accepted Answer

The crises was triggered by mi

Question 9

Share prices are a valuation of a corporation's ________.

Accepted Answer

A)  collateral 
B)  net worth 
C)  current capital 
D)  net earnings 
A)  collateral 
B)  net worth 
C)  current capital 
D)  net earnings

Question 10

Canada avoided a financial crisis for all of the reasons below except________.

Accepted Answer

A)  Canadian banks were more tightly regulated. 
B)  Canada's banks were more conservative in their lending practices. 
C)  The Canadian financial institutions were well diversified relative to U.S. peers. 
D)  Canada did not allow any U.S.-style subprime mortgages. 
A)  Canadian banks were more tightly regulated. 
B)  Canada's banks were more conservative in their lending practices. 
C)  The Canadian financial institutions were well diversified relative to U.S. peers. 
D)  Canada did not allow any U.S.-style subprime mortgages.

Question 11

Financial crises ________.

Accepted Answer

A)  are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms 
B)  occur when adverse selection and moral hazard problems in financial markets become less significant 
C)  frequently lead to sharp expansions in economic activity 
D)  are a free-rider problem 
A)  are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms 
B)  occur when adverse selection and moral hazard problems in financial markets become less significant 
C)  frequently lead to sharp expansions in economic activity 
D)  are a free-rider problem

Question 12

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating cause of the financial crisis?

Accepted Answer

A)  Increase in interest rates 
B)  Bank panic 
C)  Stock market decline 
D)  Increase in uncertainty 
A)  Increase in interest rates 
B)  Bank panic 
C)  Stock market decline 
D)  Increase in uncertainty

Question 13

The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.

Accepted Answer

A)  principal-agent 
B)  debt deflation 
C)  democratization of credit 
D)  collateralized debt 
A)  principal-agent 
B)  debt deflation 
C)  democratization of credit 
D)  collateralized debt

Question 14

By 2012, the debt to GDP ratio for Greece had climbed to ________.

Accepted Answer

A)  60% 
B)  100% 
C)  160% 
D)  200% 
A)  60% 
B)  100% 
C)  160% 
D)  200%

Question 15

The elimination of restrictions on financial markets and institutions is also known as ________.

Accepted Answer

A)  financial engineering 
B)  financial lending 
C)  financial liberalization 
D)  financial deleveraging 
A)  financial engineering 
B)  financial lending 
C)  financial liberalization 
D)  financial deleveraging

Question 16

________ is the development of new, sophisticated financial instruments.

Accepted Answer

A)  Discounting 
B)  Origination 
C)  Financial engineering 
D)  Distribution 
A)  Discounting 
B)  Origination 
C)  Financial engineering 
D)  Distribution

Question 17

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n) ________.

Accepted Answer

A)  banking crisis 
B)  financial recovery 
C)  reduction of the adverse selection and moral hazard problems 
D)  increase in information available to investors 
A)  banking crisis 
B)  financial recovery 
C)  reduction of the adverse selection and moral hazard problems 
D)  increase in information available to investors

Question 18

A bank loan to a household or business was not a security because ________.

Accepted Answer

A)  it could not be bought or sold in a financial market 
B)  it was not a debt instrument 
C)  there was no market for them 
D)  they increased the asymmetric information problem 
A)  it could not be bought or sold in a financial market 
B)  it was not a debt instrument 
C)  there was no market for them 
D)  they increased the asymmetric information problem

Question 19

Financial innovations that emerged after 2000 in the mortgage markets included all of the following except ________.

Accepted Answer

A)  adjustable-rate mortgages 
B)  subprime mortgages 
C)  Alt-A mortgages 
D)  mortgage-backed securities 
A)  adjustable-rate mortgages 
B)  subprime mortgages 
C)  Alt-A mortgages 
D)  mortgage-backed securities

Question 20

When regulators examine a financial institution's risk incurring activities it is engaging in ________ supervision.

Accepted Answer

A)  microprudential 
B)  macroprudential 
C)  both microprudential and macroprudential 
D)  neither microprudential nor macroprudential 
A)  microprudential 
B)  macroprudential 
C)  both microprudential and macroprudential 
D)  neither microprudential nor macroprudential

Exam 11: Financial Crises

Like a CDO, a structured investment vehicle pays off cash flows from pools of assets, however, rather than long-term debt the structured investment vehicle backs ________.

A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a ________.

When there is a deterioration in financial institutions' balance sheets ________.

When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in ________.

The Irish government helped mitigate the financial crisis by ________.

Agency problems in the subprime mortgage market included all of the following except ________.

When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called ________.

What triggered the 2007-2008 financial crises ?

Share prices are a valuation of a corporation's ________.

Canada avoided a financial crisis for all of the reasons below except________.

Financial crises ________.

If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating cause of the financial crisis?

The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.

By 2012, the debt to GDP ratio for Greece had climbed to ________.

The elimination of restrictions on financial markets and institutions is also known as ________.

________ is the development of new, sophisticated financial instruments.

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n) ________.

A bank loan to a household or business was not a security because ________.

Financial innovations that emerged after 2000 in the mortgage markets included all of the following except ________.

When regulators examine a financial institution's risk incurring activities it is engaging in ________ supervision.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Filters