Question 1

The answer is,"They are mortgage loans granted to persons who might have low credit ratings." The question is:

Accepted Answer

A)  What are traditional loans? 
B)  What are collateralized debt obligations? 
C)  What are subprime mortgage loans? 
D)  What are securitized loans? 
A)  What are traditional loans? 
B)  What are collateralized debt obligations? 
C)  What are subprime mortgage loans? 
D)  What are securitized loans?

Question 2

In the 1990s and early 2000s,mortgage lending standards ______________ in the United States. In general,there was a move _____________ traditional lending practices during this period.

Accepted Answer

A)  declined; away from 
B)  declined; towards more 
C)  became more strict; away from 
D)  became more strict; towards more 
A)  declined; away from 
B)  declined; towards more 
C)  became more strict; away from 
D)  became more strict; towards more

Question 3

Which of the following is an example of a participant in the financial sector?

Accepted Answer

A)  commercial banks 
B)  investment banks 
C)  hedge funds 
D)  brokerage firms 
E)  all of the above 
A)  commercial banks 
B)  investment banks 
C)  hedge funds 
D)  brokerage firms 
E)  all of the above

Question 4

Securitization is the process by which financial institutions

Accepted Answer

A)  pool together a group of loans and then issue securities backed by the pool. 
B)  determine the composition of their assets that will yield the optimal amount of security for their financial health. 
C)  borrow funds from the Federal Reserve and then use those funds to make loans to their customers. 
D)  determine sub-prime mortgage rates. 
A)  pool together a group of loans and then issue securities backed by the pool. 
B)  determine the composition of their assets that will yield the optimal amount of security for their financial health. 
C)  borrow funds from the Federal Reserve and then use those funds to make loans to their customers. 
D)  determine sub-prime mortgage rates.

Question 5

Which sequence of events correctly and sequentially best describes financial sector problems spilling over to the real sector of the economy?

Accepted Answer

A)  Bank assets increase, capital increases, consumers purchase less, firms lay-off workers. 
B)  Bank liabilities increase, capital decreases, consumers purchase more of the "wrong" products, firms lay-off some workers and hire other workers. 
C)  Bank assets decline in value, banks approach insolvency, banks cut back on lending, consumers purchase less, some firms produce less and other firms go out of business. 
D)  Banks engage in regulatory capital arbitrage, leverage ratios are rising, asset values are rising, consumers purchase less, producers produce less, firms lay-off some workers. 
E)  none of the above 
A)  Bank assets increase, capital increases, consumers purchase less, firms lay-off workers. 
B)  Bank liabilities increase, capital decreases, consumers purchase more of the "wrong" products, firms lay-off some workers and hire other workers. 
C)  Bank assets decline in value, banks approach insolvency, banks cut back on lending, consumers purchase less, some firms produce less and other firms go out of business. 
D)  Banks engage in regulatory capital arbitrage, leverage ratios are rising, asset values are rising, consumers purchase less, producers produce less, firms lay-off some workers. 
E)  none of the above

Question 6

International standards for risk-based capital requirements were introduced under the

Accepted Answer

A)  Federal Reserve Act of 1913. 
B)  1988 Basel Accord 
C)  Community Reinvestment Act of 1977. 
D)  Federal Deposit Insurance Act of 2008. 
A)  Federal Reserve Act of 1913. 
B)  1988 Basel Accord 
C)  Community Reinvestment Act of 1977. 
D)  Federal Deposit Insurance Act of 2008.

Question 7

Regulatory capital arbitrage is a means of

Accepted Answer

A)  using borrowed funds to increase the returns that can be earned with a given amount of capital. 
B)  specifying the amount of capital that financial institutions should hold based on the riskiness of their different assets. 
C)  determining mortgage rates for sub-prime borrowers. 
D)  changing the composition of assets in such a way as to lower the overall amount of capital a financial institution holds for a given level of assets. 
A)  using borrowed funds to increase the returns that can be earned with a given amount of capital. 
B)  specifying the amount of capital that financial institutions should hold based on the riskiness of their different assets. 
C)  determining mortgage rates for sub-prime borrowers. 
D)  changing the composition of assets in such a way as to lower the overall amount of capital a financial institution holds for a given level of assets.

Question 8

Insolvency is a condition where a firm's

Accepted Answer

A)  liabilities are greater than assets. 
B)  assets are greater than liabilities. 
C)  assets are equal to liabilities. 
D)  liabilities are less than or equal to assets. 
A)  liabilities are greater than assets. 
B)  assets are greater than liabilities. 
C)  assets are equal to liabilities. 
D)  liabilities are less than or equal to assets.

Question 9

The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance.

Accepted Answer

A)  the FDIC; less 
B)  Fannie Mae (FNM
A) ; more 
C)  the FDIC; more 
D)  Fannie Mae (FNM
A) ; less 
A)  the FDIC; less 
B)  Fannie Mae (FNM
A) ; more 
C)  the FDIC; more 
D)  Fannie Mae (FNM
A) ; less

Question 10

Suppose that a bank has $30 million in asset X,$10 million in asset Y,and $20 million in asset Z. Each asset has a different risk weight. The risk weight for asset X is 30%,the risk weight for asset Y is 60%,and the risk weight for asset Z is 10%. The amount of risk-weighted assets for this bank is ____________ million. Assuming that the bank has to hold capital equal to 8% of its risk-weighted assets,the bank must hold _____________ million in capital.

Accepted Answer

A)  $17; $13,6 
B)  $60; $4.8 
C)  $17; $1.36 
D)  $66; $5.28 
A)  $17; $13,6 
B)  $60; $4.8 
C)  $17; $1.36 
D)  $66; $5.28

Exam 18: The Financial Crisis of 2007-2009

The answer is,"They are mortgage loans granted to persons who might have low credit ratings." The question is:

In the 1990s and early 2000s,mortgage lending standards ______________ in the United States. In general,there was a move _____________ traditional lending practices during this period.

Which of the following is an example of a participant in the financial sector?

Securitization is the process by which financial institutions

Which sequence of events correctly and sequentially best describes financial sector problems spilling over to the real sector of the economy?

International standards for risk-based capital requirements were introduced under the

Regulatory capital arbitrage is a means of

Insolvency is a condition where a firm's

The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

In the 1990s and early 2000s,mortgage lending standards __ in the United States. In general,there was a move _ traditional lending practices during this period.

The ability of banks to get insurance from ______ encourages banks to take on a little bit _ risk than they would in the absence of deposit insurance.