Question 1

Going forward, the financial industry will likely:

Accepted Answer

A)  Continue toward a path of deregulation especially in financial derivatives markets 
B)  Face extreme regulation that will stifle financial innovation and growth 
C)  Experience increased regulation, especially in financial derivatives markets 
D)  Be completely controlled by the government 
E)  None of the above 
A)  Continue toward a path of deregulation especially in financial derivatives markets 
B)  Face extreme regulation that will stifle financial innovation and growth 
C)  Experience increased regulation, especially in financial derivatives markets 
D)  Be completely controlled by the government 
E)  None of the above

Question 2

The principal factor determining how much a household purchases is its net worth.

Accepted Answer

A) True 
 B)False

Question 3

When depository institutions match up investors with borrowers they are serving as:

Accepted Answer

A)  Financial arbiters 
B)  Financial conduits 
C)  Financial market makers 
D)  Financial intermediaries 
E)  Financial advisors 
A)  Financial arbiters 
B)  Financial conduits 
C)  Financial market makers 
D)  Financial intermediaries 
E)  Financial advisors

Question 4

The biggest difference between mortgage-backed securities and collateralized mortgage obligations is that investors interested in mortgage-backed securities have a variety of risk tranches to choose from, while there are no such tranches provided by collateralized mortgage obligations.

Accepted Answer

A) True 
 B)False

Question 5

When a borrow defaults, the bank must write off the loan and absorb the loss by reducing its retained earnings.

Accepted Answer

A) True 
 B)False

Question 6

Explain the process of issuing mortgage-backed securities. What are the benefits the bank receives when it issues mortgage-backed securities?

Accepted Answer

During the process of issuing mortgage-b

Question 7

Under the Obama Plan, the power of the Federal Reserve would be severely limited.

Accepted Answer

A) True 
 B)False

Question 8

According to the textbook, which of the following assets were used in ABSs?

Accepted Answer

A)  Mortgages 
B)  Student loans 
C)  Auto loans 
D)  Equipment leases 
E)  None of the above 
A)  Mortgages 
B)  Student loans 
C)  Auto loans 
D)  Equipment leases 
E)  None of the above

Question 9

Subprime mortgages typically carry lower interest rates than traditional mortgages.

Accepted Answer

A) True 
 B)False

Question 10

A collateralized debt obligation built solely on "junk" mortgages can still have a highest priority tranche that carries the highest quality rating available.

Accepted Answer

A) True 
 B)False

Question 11

A mortgage contract that typically lasts 30 years and requires the borrower to pay a 20 percent down payment is known as a:

Accepted Answer

A)  Traditional mortgage contract 
B)  Traditional loan contract 
C)  Subprime mortgage contract 
D)  Subprime contract 
E)  Traditional subprime mortgage contract 
A)  Traditional mortgage contract 
B)  Traditional loan contract 
C)  Subprime mortgage contract 
D)  Subprime contract 
E)  Traditional subprime mortgage contract

Question 12

The term "underwater" means that the owner owes more on his or her mortgage than the house is worth.

Accepted Answer

A) True 
 B)False

Question 13

Fannie Mae, Ginnie Mae, and Freddie Mac were all set up by the U.S. government to help create a nationwide market for home mortgages.

Accepted Answer

A) True 
 B)False

Question 14

One of the most important contributions of the financial markets is to make possible the exchange of current income for future income.

Accepted Answer

A) True 
 B)False

Question 15

A purchaser of a corporate bond who wants to increase the credit rating of his newly acquired asset may want to consider which of the following derivatives?

Accepted Answer

A)  A credit default swap 
B)  A mortgage backed security 
C)  A collateralized mortgage obligation 
D)  An asset backed security 
E)  None of the above 
A)  A credit default swap 
B)  A mortgage backed security 
C)  A collateralized mortgage obligation 
D)  An asset backed security 
E)  None of the above

Question 16

Ultimately, Bear Stearns:

Accepted Answer

A)  Was purchased by JP Morgan Chase 
B)  Filed for bankruptcy 
C)  Was successfully bailed out by the U.S. government 
D)  Was purchased by Morgan Stanley 
E)  Converted into a commercial bank 
A)  Was purchased by JP Morgan Chase 
B)  Filed for bankruptcy 
C)  Was successfully bailed out by the U.S. government 
D)  Was purchased by Morgan Stanley 
E)  Converted into a commercial bank

Question 17

Default rates among both subprime as well as traditional mortgages have been shown to be:

Accepted Answer

A)  Pro-cyclical 
B)  Counter-cyclical 
C)  Acyclical 
D)  All of the above 
E)  None of the above 
A)  Pro-cyclical 
B)  Counter-cyclical 
C)  Acyclical 
D)  All of the above 
E)  None of the above

Question 18

Investment banks are allowed to borrow at the Federal Reserve's discount window.

Accepted Answer

A) True 
 B)False

Question 19

According to the textbook, both traditional and subprime mortgage default rates were shown to be pro-cyclical.

Accepted Answer

A) True 
 B)False

Question 20

Between March 2007 and December 2008 houses lost ______ percent of their value.

Accepted Answer

A)  50 
B)  60 
C)  35 
D)  25 
E)  None of the above 
A)  50 
B)  60 
C)  35 
D)  25 
E)  None of the above

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

Going forward, the financial industry will likely:

The principal factor determining how much a household purchases is its net worth.

When depository institutions match up investors with borrowers they are serving as:

The biggest difference between mortgage-backed securities and collateralized mortgage obligations is that investors interested in mortgage-backed securities have a variety of risk tranches to choose from, while there are no such tranches provided by collateralized mortgage obligations.

When a borrow defaults, the bank must write off the loan and absorb the loss by reducing its retained earnings.

Explain the process of issuing mortgage-backed securities. What are the benefits the bank receives when it issues mortgage-backed securities?

Under the Obama Plan, the power of the Federal Reserve would be severely limited.

According to the textbook, which of the following assets were used in ABSs?

Subprime mortgages typically carry lower interest rates than traditional mortgages.

A collateralized debt obligation built solely on "junk" mortgages can still have a highest priority tranche that carries the highest quality rating available.

A mortgage contract that typically lasts 30 years and requires the borrower to pay a 20 percent down payment is known as a:

The term "underwater" means that the owner owes more on his or her mortgage than the house is worth.

Fannie Mae, Ginnie Mae, and Freddie Mac were all set up by the U.S. government to help create a nationwide market for home mortgages.

One of the most important contributions of the financial markets is to make possible the exchange of current income for future income.

A purchaser of a corporate bond who wants to increase the credit rating of his newly acquired asset may want to consider which of the following derivatives?

Ultimately, Bear Stearns:

Default rates among both subprime as well as traditional mortgages have been shown to be:

Investment banks are allowed to borrow at the Federal Reserve's discount window.

According to the textbook, both traditional and subprime mortgage default rates were shown to be pro-cyclical.

Between March 2007 and December 2008 houses lost ______ percent of their value.

Understanding the Financial System and Its Impact on the Economy and Markets

Financial Systems, Monetary Units, and the Role of Money in the Economy

Financial Indices, Market Information, and Economic Data

Understanding Interest Rates, Savings, and the Wealth Effect

Financial Concepts and Interest Rates

Effects of Inflation and Yield Curves on Stock Prices and Investments

Understanding Risk and Market Factors in Financial Securities

Exploring Financial Markets and Hedging Strategies

Factors Affecting the Volume of CDs

Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Exploring Central Banks and Their Impact on the Economy and Financial System

Central Banking and Monetary Policy: Exploring Tools and Strategies

Banking and Financial Services: Regulations, Operations, and Trends

Comparative Analysis of Financial Institutions and Their Operations

Exploring Various Aspects of Pension Funds, Finance Companies, and Insurance Industry

The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Corporate Bond Pricing, Market Development, and Financing Strategies

The Truth About Regulation Fd and Stock Holdings: Debunking Common Myths in the Financial Market

Flexible Savings Account Options

Mortgage Market and Mortgage Instruments

International Financial Transactions and Balance of Payments

International Banking and Financial Regulations

Exploring the Complexities of Financial Services and Regulation

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