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

Subprime mortgage contracts are traditionally designed for borrowers who:

Commercial banks are regulated by the SEC.

Net worth is defined as the total value of one's assets less the total value of one's liabilities.

GDP stands for Gross Domestic Product.

Improper use of financial derivatives may perpetuate systemic risk.

Both Morgan Stanley and Goldman Sachs changed into commercial banks during the credit crisis.

Financial derivatives are a relatively new financial asset that developed within strictly regulated and monitored markets.

The Federal Reserve's attempt to bail out AIG was completely successful, and AIG has repaid all of its debts to the U.S. government.

Which of the following is not part of the Obama Plan?

Within only 19 months, the S&P 500 lost 57% of its value.

The great credit crisis of 2007-2009 represents the worst financial crisis in the U.S. since the:

Explain what a collateralized mortgage obligation is and how it differs from a pass-through mortgage-backed security.

Which of the following was not one of the five large U.S. investment banks in existence prior to the great credit crisis of 2007-2009?

Once assets have been securitized, they can no longer lose value.

During the decades leading up to the great credit crisis, financial innovation was occurring rapidly.

The process of pooling assets together and selling bonds off of their joint income streams is a process known as securitization.

From 1997 to 2007 the volume of new issues of MBSs increased tenfold.

Capital requirements are set in place to help ensure that a bank has a cushion available in case many borrowers default simultaneously.

Describe the main principles or objectives of the Obama Plan.

The simplest form of MBS is known as a: