Question 1

What is debt deflation?

Accepted Answer

Debt deflation occurs when a decline in price levels leads to deterioration in firms' net worth because of the increased burden of indebtedness.

Question 2

Financial crises ________.

Accepted Answer

A)  are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms 
B)  occur when adverse selection and moral hazard problems in financial markets become less significant 
C)  frequently lead to sharp expansions in economic activity 
D)  are a free-rider problem 
A)  are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms 
B)  occur when adverse selection and moral hazard problems in financial markets become less significant 
C)  frequently lead to sharp expansions in economic activity 
D)  are a free-rider problem A

Question 3

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

Accepted Answer

A)  strong supervision by bank regulators 
B)  bankers' lack of expertise in screening and monitoring borrowers 
C)  improvement of banks' balance sheets because of decreasing loan losses 
D)  unanticipated increases in the price level 
A)  strong supervision by bank regulators 
B)  bankers' lack of expertise in screening and monitoring borrowers 
C)  improvement of banks' balance sheets because of decreasing loan losses 
D)  unanticipated increases in the price level B

Question 4

A(n)________ is an increase in prices of assets above their fundamental economic values.

Accepted Answer

A)  decrease in moral hazard 
B)  asset-price bubble 
C)  decline in lending 
D)  liability war 
A)  decrease in moral hazard 
B)  asset-price bubble 
C)  decline in lending 
D)  liability war

Question 5

In a bank panic,the source of contagion is the ________.

Accepted Answer

A)  free-rider problem 
B)  too-big-to-fail problem 
C)  transactions cost problem 
D)  asymmetric information problem 
A)  free-rider problem 
B)  too-big-to-fail problem 
C)  transactions cost problem 
D)  asymmetric information problem

Question 6

During the ABCP saga,The Bank of Canada ________.

Accepted Answer

A)  shut down all non-bank sponsored conduits 
B)  refused to accept ABCPs as collateral for loans to banks 
C)  provided liquidity as a lender to the market 
D)  was bailed out by the CDIC 
A)  shut down all non-bank sponsored conduits 
B)  refused to accept ABCPs as collateral for loans to banks 
C)  provided liquidity as a lender to the market 
D)  was bailed out by the CDIC

Question 7

Typically,the economy recovers fairly quickly from a recession.Why did this not happen in the United States during the Great Depression?

Accepted Answer

The 25 percent decline in the price leve

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

Describe an asset-price bubble.

Accepted Answer

An asset-price bubble is a ter

Question 10

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen.A depreciation of the domestic currency ________.

Accepted Answer

A)  results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged 
B)  results in an increase in the value of the firm's assets 
C)  means that the firm does not owe as much on their foreign debt 
D)  strengthens their balance sheet in terms of the domestic currency 
A)  results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged 
B)  results in an increase in the value of the firm's assets 
C)  means that the firm does not owe as much on their foreign debt 
D)  strengthens their balance sheet in terms of the domestic currency

Question 11

The elimination of restrictions on financial markets and institutions is also known as ________.

Accepted Answer

A)  financial engineering 
B)  financial lending 
C)  financial liberalization 
D)  financial deleveraging 
A)  financial engineering 
B)  financial lending 
C)  financial liberalization 
D)  financial deleveraging

Question 12

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 13

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)  weak supervision by bank regulators 
D)  decline in interest rates 
A)  failure of the Mexican oil monopoly 
B)  the ratification of the North American Free Trade Agreement 
C)  weak supervision by bank regulators 
D)  decline in interest rates

Question 14

Which investment bank filed for bankruptcy on September 15,2008 making it the largest bankruptcy filing in U.S.history?

Accepted Answer

A)  Lehman Brothers 
B)  Merrill Lynch 
C)  Bear Stearns 
D)  Goldman Sachs 
A)  Lehman Brothers 
B)  Merrill Lynch 
C)  Bear Stearns 
D)  Goldman Sachs

Question 15

How can asymmetric information lead to a bank panic?

Accepted Answer

Depositors cannot judge the quality of t

Question 16

If the anatomy of a financial crisis is thought of as a sequence of events,which of the following events would be least likely to be the initiating cause of the financial crisis?

Accepted Answer

A)  Increase in interest rates 
B)  Stock market decline 
C)  Unanticipated decline in price level 
D)  Increase in uncertainty 
A)  Increase in interest rates 
B)  Stock market decline 
C)  Unanticipated decline in price level 
D)  Increase in uncertainty

Question 17

A sharp stock market decline increases moral hazard incentives ________.

Accepted Answer

A)  since borrowing firms have less to lose if their investments fail 
B)  because it is immoral to profit from someone's loss 
C)  since lenders are more willing to make loans 
D)  reducing uncertainty in the economy and increasing market efficiency 
A)  since borrowing firms have less to lose if their investments fail 
B)  because it is immoral to profit from someone's loss 
C)  since lenders are more willing to make loans 
D)  reducing uncertainty in the economy and increasing market efficiency

Question 18

A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend.

Accepted Answer

A)  net worth; less 
B)  net worth; more 
C)  liability; less 
D)  liability; more 
A)  net worth; less 
B)  net worth; more 
C)  liability; less 
D)  liability; more

Question 19

When housing prices began to decline after their peak in 2006,many subprime borrowers found that their mortgages were "underwater." This meant that ________.

Accepted Answer

A)  the value of the house fell below the amount of the mortgage 
B)  the basement flooded since they could not afford to fix the leaky plumbing 
C)  the roof leaked during a rainstorm 
D)  the amount that they owed on their mortgage was less than the value of their house 
A)  the value of the house fell below the amount of the mortgage 
B)  the basement flooded since they could not afford to fix the leaky plumbing 
C)  the roof leaked during a rainstorm 
D)  the amount that they owed on their mortgage was less than the value of their house

Question 20

What triggered the 2007-2008 financial crises ?

Accepted Answer

The crises was triggered by mi

Exam 9: Financial Crises

What is debt deflation?

Financial crises ________.

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

A(n)________ is an increase in prices of assets above their fundamental economic values.

In a bank panic,the source of contagion is the ________.

During the ABCP saga,The Bank of Canada ________.

Typically,the economy recovers fairly quickly from a recession.Why did this not happen in the United States during the Great Depression?

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

Describe an asset-price bubble.

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen.A depreciation of the domestic currency ________.

The elimination of restrictions on financial markets and institutions is also known as ________.

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

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

Which investment bank filed for bankruptcy on September 15,2008 making it the largest bankruptcy filing in U.S.history?

How can asymmetric information lead to a bank panic?

If the anatomy of a financial crisis is thought of as a sequence of events,which of the following events would be least likely to be the initiating cause of the financial crisis?

A sharp stock market decline increases moral hazard incentives ________.

A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend.

When housing prices began to decline after their peak in 2006,many subprime borrowers found that their mortgages were "underwater." This meant that ________.

What triggered the 2007-2008 financial crises ?

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Filters

A sharp decline in the stock market means that the of corporations has fallen making lenders willing to lend.