Question 1

The two key factors that trigger speculative attacks on emerging market currencies are

Accepted Answer

A)  deterioration in bank balance sheets and severe fiscal imbalances. 
B)  deterioration in bank balance sheets and low interest rates abroad. 
C)  low interest rates abroad and severe fiscal imbalances. 
D)  low interest rates abroad and rising asset prices. 
A)  deterioration in bank balance sheets and severe fiscal imbalances. 
B)  deterioration in bank balance sheets and low interest rates abroad. 
C)  low interest rates abroad and severe fiscal imbalances. 
D)  low interest rates abroad and rising asset prices. A

Question 2

Factors likely to cause a financial crisis in emerging market countries include

Accepted Answer

A)  severe fiscal imbalances. 
B)  decreases in foreign interest rates. 
C)  a foreign exchange crisis. 
D)  too strong oversight of the financial industry. 
A)  severe fiscal imbalances. 
B)  decreases in foreign interest rates. 
C)  a foreign exchange crisis. 
D)  too strong oversight of the financial industry. A

Question 3

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

Accepted Answer

A)  nearly 50% of GDP. 
B)  about 10% of GDP. 
C)  almost 90% of GDP. 
D)  nearly 25% of GDP. 
A)  nearly 50% of GDP. 
B)  about 10% of GDP. 
C)  almost 90% of GDP. 
D)  nearly 25% of GDP. A

Question 4

When the value of loans begins to drop,the net worth of financial institutions falls causing them to cut back on lending in a process called

Accepted Answer

A)  deleveraging. 
B)  releveraging. 
C)  capitulation. 
D)  deflation. 
A)  deleveraging. 
B)  releveraging. 
C)  capitulation. 
D)  deflation.

Question 5

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks,the country experiences a(n)

Accepted Answer

A)  banking crisis. 
B)  financial recovery. 
C)  reduction of the adverse selection and moral hazard problems. 
D)  increase in information available to investors. 
A)  banking crisis. 
B)  financial recovery. 
C)  reduction of the adverse selection and moral hazard problems. 
D)  increase in information available to investors.

Question 6

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets,but did not lead to worsening financial market conditions in East Asia in 1997-1998 include

Accepted Answer

A)  rise in interest rates abroad. 
B)  bankers' lack of expertise in screening and monitoring borrowers. 
C)  deterioration of banks' balance sheets because of increasing loan losses. 
D)  stock market decline. 
A)  rise in interest rates abroad. 
B)  bankers' lack of expertise in screening and monitoring borrowers. 
C)  deterioration of banks' balance sheets because of increasing loan losses. 
D)  stock market decline.

Question 7

A serious consequence of a financial crisis is

Accepted Answer

A)  a contraction in economic activity. 
B)  an increase in asset prices. 
C)  financial engineering. 
D)  financial globalization. 
A)  a contraction in economic activity. 
B)  an increase in asset prices. 
C)  financial engineering. 
D)  financial globalization.

Question 8

A feature of debt markets in emerging-market countries is that debt contracts are typically

Accepted Answer

A)  very short term. 
B)  long term. 
C)  intermediate term. 
D)  perpetual. 
A)  very short term. 
B)  long term. 
C)  intermediate term. 
D)  perpetual.

Question 9

Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan. This created a

Accepted Answer

A)  severe adverse selection problem. 
B)  decline in mortgage applications. 
C)  call to deregulate the industry. 
D)  decrease in the demand for houses. 
A)  severe adverse selection problem. 
B)  decline in mortgage applications. 
C)  call to deregulate the industry. 
D)  decrease in the demand for houses.

Question 10

Agency problems in the subprime mortgage market included all of the following except

Accepted Answer

A)  homeowners could refinance their houses with larger loans when their homes appreciated in value. 
B)  mortgage originators had little incentives to make sure that the mortgage is a good credit risk. 
C)  underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back. 
D)  the evaluators of securities, the credit rating agencies, were subject to conflicts of interest. 
A)  homeowners could refinance their houses with larger loans when their homes appreciated in value. 
B)  mortgage originators had little incentives to make sure that the mortgage is a good credit risk. 
C)  underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back. 
D)  the evaluators of securities, the credit rating agencies, were subject to conflicts of interest.

Question 11

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system

Accepted Answer

A)  causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently. 
B)  allows for a more efficient use of funds. 
C)  increases economic activity. 
D)  reduces uncertainty in the economy and increases market efficiency. 
A)  causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently. 
B)  allows for a more efficient use of funds. 
C)  increases economic activity. 
D)  reduces uncertainty in the economy and increases market efficiency.

Question 12

Although the subprime mortgage market problem began in the United States,the first indication of the seriousness of the crisis began in

Accepted Answer

A)  Europe. 
B)  Australia. 
C)  China. 
D)  South America. 
A)  Europe. 
B)  Australia. 
C)  China. 
D)  South America.

Question 13

A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a

Accepted Answer

A)  financial crisis. 
B)  fiscal imbalance. 
C)  free-rider problem. 
D)  "lemons" problem. 
A)  financial crisis. 
B)  fiscal imbalance. 
C)  free-rider problem. 
D)  "lemons" problem.

Question 14

The growth of the subprime mortgage market led to

Accepted Answer

A)  increased demand for houses and helped fuel the boom in housing prices. 
B)  a decline in the housing industry because of higher default risk. 
C)  a decrease in home ownership as investors chose other assets over housing. 
D)  decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages. 
A)  increased demand for houses and helped fuel the boom in housing prices. 
B)  a decline in the housing industry because of higher default risk. 
C)  a decrease in home ownership as investors chose other assets over housing. 
D)  decreased demand for houses as the less credit-worthy borrowers could not obtain residential mortgages.

Question 15

As "haircuts" increased during 2007-2009,financial institutions found that to borrow the same loan amount now required ________ collateral.

Accepted Answer

A)  less 
B)  no 
C)  more 
D)  default-free 
A)  less 
B)  no 
C)  more 
D)  default-free

Question 16

Most U.S.financial crises have started during periods of ________ either after the start of a recession or a stock market crash.

Accepted Answer

A)  high uncertainty 
B)  low interest rates 
C)  low asset prices 
D)  high financial regulation 
A)  high uncertainty 
B)  low interest rates 
C)  low asset prices 
D)  high financial regulation

Question 17

A sharp depreciation of the domestic currency after a currency crisis leads to

Accepted Answer

A)  higher inflation. 
B)  lower import prices. 
C)  lower interest rates. 
D)  decrease in the value of foreign currency-denominated liabilities. 
A)  higher inflation. 
B)  lower import prices. 
C)  lower interest rates. 
D)  decrease in the value of foreign currency-denominated liabilities.

Question 18

All of the following might create problems from financial liberalization in emerging countries except

Accepted Answer

A)  ineffective screening of borrowers. 
B)  limits on risk-taking. 
C)  lax government supervision of banks. 
D)  lenders failure to monitor borrowers. 
A)  ineffective screening of borrowers. 
B)  limits on risk-taking. 
C)  lax government supervision of banks. 
D)  lenders failure to monitor borrowers.

Question 19

A ________ pays out cash flows from subprime mortgage-backed securities in different tranches,with the highest-rated tranch paying out first,while lower ones paid out less if there were losses on the mortgage-backed securities.

Accepted Answer

A)  Collateralized debt obligation (CDO) 
B)  Adjustable-rate mortgage 
C)  Negotiable CD 
D)  Discount bond 
A)  Collateralized debt obligation (CDO) 
B)  Adjustable-rate mortgage 
C)  Negotiable CD 
D)  Discount bond

Question 20

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include

Accepted Answer

A)  failure of the Mexican oil monopoly. 
B)  the ratification of the North American Free Trade Agreement. 
C)  increased uncertainty from political shocks. 
D)  decline in interest rates. 
A)  failure of the Mexican oil monopoly. 
B)  the ratification of the North American Free Trade Agreement. 
C)  increased uncertainty from political shocks. 
D)  decline in interest rates.

Exam 9: Financial Crises

The two key factors that trigger speculative attacks on emerging market currencies are

Factors likely to cause a financial crisis in emerging market countries include

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

When the value of loans begins to drop,the net worth of financial institutions falls causing them to cut back on lending in a process called

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks,the country experiences a(n)

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets,but did not lead to worsening financial market conditions in East Asia in 1997-1998 include

A serious consequence of a financial crisis is

A feature of debt markets in emerging-market countries is that debt contracts are typically

Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan. This created a

Agency problems in the subprime mortgage market included all of the following except

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system

Although the subprime mortgage market problem began in the United States,the first indication of the seriousness of the crisis began in

A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a

The growth of the subprime mortgage market led to

As "haircuts" increased during 2007-2009,financial institutions found that to borrow the same loan amount now required ________ collateral.

Most U.S.financial crises have started during periods of ________ either after the start of a recession or a stock market crash.

A sharp depreciation of the domestic currency after a currency crisis leads to

All of the following might create problems from financial liberalization in emerging countries except

A ________ pays out cash flows from subprime mortgage-backed securities in different tranches,with the highest-rated tranch paying out first,while lower ones paid out less if there were losses on the mortgage-backed securities.

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

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