Question 1

Bear Stearns was purchased by Bank of America.

Accepted Answer

A) True 
 B)False

Question 2

The purchaser of mortgage-backed securities also receives the servicing rights to the underlying mortgages.

Accepted Answer

A) True 
 B)False

Question 3

A large drop in wealth can lead to a reduction in consumer confidence and spending.

Accepted Answer

A) True 
 B)False

Question 4

The housing market was one of the only markets that survived the great credit crisis of 2007-2009 with minimal loss of value.

Accepted Answer

A) True 
 B)False

Question 5

The government completely took over control of AIG in order to prevent its failure during the credit crisis.

Accepted Answer

A) True 
 B)False

Question 6

The S&P 500 stock index reached an all time high of 1565.15 on March 9, 2009.

Accepted Answer

A) True 
 B)False

Question 7

A naked credit default swap is a purely speculative asset.

Accepted Answer

A) True 
 B)False

Question 8

_________ and __________ together backed roughly 50 percent of the economy's mortgages.

Accepted Answer

A)  AIG; Morgan Stanley 
B)  AIG; Goldman Sacks 
C)  Fannie Mae; Ginnie Mae 
D)  Fannie Mae; Freddie Mac 
E)  Fannie Mae; AIG 
A)  AIG; Morgan Stanley 
B)  AIG; Goldman Sacks 
C)  Fannie Mae; Ginnie Mae 
D)  Fannie Mae; Freddie Mac 
E)  Fannie Mae; AIG

Question 9

Explain the difference between traditional and subprime mortgages. Who normally finances their home using a traditional mortgage? Who normally finances their home using a subprime mortgage?

Accepted Answer

Traditional mortgages typically require

Question 10

The collective net worth of U.S. households fell by nearly __________ between September 2007 and December 2008.

Accepted Answer

A)  $13 trillion 
B)  $100 billion 
C)  $16 million 
D)  $17 trillion 
E)  $80 billion 
A)  $13 trillion 
B)  $100 billion 
C)  $16 million 
D)  $17 trillion 
E)  $80 billion

Question 11

As of the first quarter of 2009, the largest net lender to the economy was:

Accepted Answer

A)  U.S. households 
B)  U.S. investment banks 
C)  The U.S. government 
D)  The World Bank 
E)  The Federal Reserve 
A)  U.S. households 
B)  U.S. investment banks 
C)  The U.S. government 
D)  The World Bank 
E)  The Federal Reserve

Question 12

The two most important assets for a household are its home and its stock portfolios (either directly invested or indirectly invested through mutual funds).

Accepted Answer

A) True 
 B)False

Question 13

A portfolio composed of a variety of risky tranches from different CMOs is referred to as a:

Accepted Answer

A)  Mortgage backed security 
B)  Credit default swap 
C)  Collateralized portfolio 
D)  Uncollateralized portfolio 
E)  None of the above 
A)  Mortgage backed security 
B)  Credit default swap 
C)  Collateralized portfolio 
D)  Uncollateralized portfolio 
E)  None of the above

Question 14

Aggregate economic slowdowns were shown to increase default rates among __________ mortgage loans more than ___________ mortgage loans.

Accepted Answer

A)  traditional; subprime 
B)  above prime; subprime 
C)  customary; traditional 
D)  subprime; traditional 
E)  None of the above 
A)  traditional; subprime 
B)  above prime; subprime 
C)  customary; traditional 
D)  subprime; traditional 
E)  None of the above

Question 15

During 2008, a total of _____ banks failed.

Accepted Answer

A)  0 
B)  3 
C)  100 
D)  52 
E)  26 
A)  0 
B)  3 
C)  100 
D)  52 
E)  26

Question 16

The only financial asset that can be used in a CDO is a home mortgage.

Accepted Answer

A) True 
 B)False

Question 17

One of the values of collateralized mortgage obligations (CMO) is that they:

Accepted Answer

A)  Eliminate systemic risk 
B)  Perpetuate systemic risk 
C)  Eliminate political risk 
D)  Permit a degree of risk-sharing 
E)  None of the above 
A)  Eliminate systemic risk 
B)  Perpetuate systemic risk 
C)  Eliminate political risk 
D)  Permit a degree of risk-sharing 
E)  None of the above

Question 18

When Lehman Brothers started to publicly experience trouble the mortgage market was in ruins, and its balance sheet was in such terrible shape that it could not attract a potential buyer.

Accepted Answer

A) True 
 B)False

Question 19

Ultimately, Merrill Lynch:

Accepted Answer

A)  Was purchased by Goldman Sachs 
B)  Filed for bankruptcy 
C)  Was purchased by Bank of America 
D)  Was taken over by the U.S. government 
E)  Converted into a commercial bank 
A)  Was purchased by Goldman Sachs 
B)  Filed for bankruptcy 
C)  Was purchased by Bank of America 
D)  Was taken over by the U.S. government 
E)  Converted into a commercial bank

Question 20

As of the first quarter of 2009, the largest net borrower was:

Accepted Answer

A)  U.S. households 
B)  U.S. investment banks 
C)  The World Bank 
D)  The U.S. government 
E)  The Federal Reserve 
A)  U.S. households 
B)  U.S. investment banks 
C)  The World Bank 
D)  The U.S. government 
E)  The Federal Reserve

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

Bear Stearns was purchased by Bank of America.

The purchaser of mortgage-backed securities also receives the servicing rights to the underlying mortgages.

A large drop in wealth can lead to a reduction in consumer confidence and spending.

The housing market was one of the only markets that survived the great credit crisis of 2007-2009 with minimal loss of value.

The government completely took over control of AIG in order to prevent its failure during the credit crisis.

The S&P 500 stock index reached an all time high of 1565.15 on March 9, 2009.

A naked credit default swap is a purely speculative asset.

_________ and __________ together backed roughly 50 percent of the economy's mortgages.

Explain the difference between traditional and subprime mortgages. Who normally finances their home using a traditional mortgage? Who normally finances their home using a subprime mortgage?

The collective net worth of U.S. households fell by nearly __________ between September 2007 and December 2008.

As of the first quarter of 2009, the largest net lender to the economy was:

The two most important assets for a household are its home and its stock portfolios (either directly invested or indirectly invested through mutual funds).

A portfolio composed of a variety of risky tranches from different CMOs is referred to as a:

Aggregate economic slowdowns were shown to increase default rates among __________ mortgage loans more than ___________ mortgage loans.

During 2008, a total of _____ banks failed.

The only financial asset that can be used in a CDO is a home mortgage.

One of the values of collateralized mortgage obligations (CMO) is that they:

When Lehman Brothers started to publicly experience trouble the mortgage market was in ruins, and its balance sheet was in such terrible shape that it could not attract a potential buyer.

Ultimately, Merrill Lynch:

As of the first quarter of 2009, the largest net borrower was:

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

Filters

_ and __ together backed roughly 50 percent of the economy's mortgages.

Aggregate economic slowdowns were shown to increase default rates among mortgage loans more than _ mortgage loans.