Exam 4: The Financial Crisis and Its Impact on the Mortgage Market and Economy

Being that corporations and the government are so large, consumption spending amounts to only a tiny fraction of the U.S. GDP.

In order to ensure that a cushion of funds exist in the event a large number of borrows default simultaneously, commercial banks are required to maintain specific:

Interest income earned on bank loans is used to pay the bank's operating expenses as well as the interest it owes to its depositors and bondholders.

Issuing mortgage-backed securities benefits banks because it:

Investment banks are regulated by the SEC.

When borrowers default, banks are not negatively affected, due to FDIC insurance.

Explain a credit default swap and the reasons someone would be interested in purchasing one.

The notion that a company is too important to the performance of the overall economy and that its demise may perpetuate systemic risk is known as:

A traditional mortgage is normally made for 15 years.

CDOs are only a small fraction of financial derivatives known as:

When the collective net worth of U.S. households experienced a 20 percent loss, three-quarters of the loss was due to the collapse in the housing market and the decline in the stock market.

Describe how the Obama Plan will increase consumer protection. What powers will the new agency have at their disposal?

The highest priority tranches of CMOs with junk bond status as their sole underlying assets were often rated as:

From September 2007 through December 2008, the collective net worth of U.S. households rose by nearly $1 trillion.

During the decades leading up to the financial crisis, the financial markets were largely:

Seeing as how a household's home and stock portfolio are substantial assets, when they lose value the household is made worse off financially.

Explain what a collateral portfolio is and also what a collateralized debt obligation is. Are there any potential problems with the widespread use of collateralized debt obligations?

Explain what happened to stock values and home values during the great credit crisis of 2007-2009. What did this do to consumer wealth?

The two most important assets for a household are its bank deposit account and its home.

At the beginning of 2007, Lehman Brothers stock was: