Question 1

During Ireland's financial crisis,housing prices ________.

Accepted Answer

A)  fell by nearly 20 percent 
B)  remained constant despite housing price declines across the globe 
C)  fell by just less than 50 percent 
D)  rose slightly and helped mitigate the country's recession 
A)  fell by nearly 20 percent 
B)  remained constant despite housing price declines across the globe 
C)  fell by just less than 50 percent 
D)  rose slightly and helped mitigate the country's recession

Question 2

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)  Bank panic 
C)  Stock market decline 
D)  Increase in uncertainty 
A)  Increase in interest rates 
B)  Bank panic 
C)  Stock market decline 
D)  Increase in uncertainty

Question 3

An important factor leading up to the Mexican financial crisis of 1994-1995 was ________.

Accepted Answer

A)  the failure of the Mexican oil monopoly 
B)  increasing loan losses at Mexican banks 
C)  the ratification of the North American Free Trade Agreement 
D)  the failure to ratify the North American Free Trade Agreement 
A)  the failure of the Mexican oil monopoly 
B)  increasing loan losses at Mexican banks 
C)  the ratification of the North American Free Trade Agreement 
D)  the failure to ratify the North American Free Trade Agreement

Question 4

How do increases in interest rates play a role in promoting financial crises?

Accepted Answer

Students should discuss the in

Question 5

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 6

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

Accepted Answer

A)  negative 
B)  positive 
C)  affirming 
D)  advancing 
A)  negative 
B)  positive 
C)  affirming 
D)  advancing

Question 7

In recent years,a number of developing and transition countries have experienced financial crises,the most dramatic of which was the ________.

Accepted Answer

A)  Mexican crisis of 1994-1995 
B)  Mexican crisis of 1988-1989 
C)  Argentina crisis of 1995-1996 
D)  Brazilian crisis of 1996-1997 
A)  Mexican crisis of 1994-1995 
B)  Mexican crisis of 1988-1989 
C)  Argentina crisis of 1995-1996 
D)  Brazilian crisis of 1996-1997

Question 8

What two key factors trigger speculative attacks leading to currency crises in emerging market countries?

Accepted Answer

The deterioration in bank balance sheets

Question 9

________ is the development of new,sophisticated financial instruments.

Accepted Answer

A)  Discounting 
B)  Origination 
C)  Financial engineering 
D)  Distribution 
A)  Discounting 
B)  Origination 
C)  Financial engineering 
D)  Distribution

Question 10

Between October 2007 and March 2009,asset prices fell by ________.

Accepted Answer

A)  over 50 percent 
B)  10 percent 
C)  around 16 percent 
D)  less than 30 percent 
A)  over 50 percent 
B)  10 percent 
C)  around 16 percent 
D)  less than 30 percent

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 channelling 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 channelling 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

Credit default swaps ________.

Accepted Answer

A)  provide payments to holders of bonds if they default 
B)  decrease asymmetric information in the mortgage markets 
C)  had strong incentives to make sure CDO holders would be paid off 
D)  were only a small part of insurance companies portfolios 
A)  provide payments to holders of bonds if they default 
B)  decrease asymmetric information in the mortgage markets 
C)  had strong incentives to make sure CDO holders would be paid off 
D)  were only a small part of insurance companies portfolios

Question 13

A decline in asset prices can lead to ________.

Accepted Answer

A)  worsening adverse selection and moral hazard problems 
B)  declining uncertainty 
C)  increased economic activity 
D)  anticipated increase in the price level 
A)  worsening adverse selection and moral hazard problems 
B)  declining uncertainty 
C)  increased economic activity 
D)  anticipated increase in the price level

Question 14

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets 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)  decrease in interest rates 
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)  decrease in interest rates

Question 15

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 16

Argentina's financial crisis was due to ________.

Accepted Answer

A)  poor supervision of the banking system 
B)  a lending boom prior to the crisis 
C)  fiscal imbalances 
D)  lack of expertise in screening and monitoring borrowers at banking institutions 
A)  poor supervision of the banking system 
B)  a lending boom prior to the crisis 
C)  fiscal imbalances 
D)  lack of expertise in screening and monitoring borrowers at banking institutions

Question 17

A possible sequence for the three stages of a financial crisis in Canada might be ________ leads to ________ leads to ________.

Accepted Answer

A)  asset price declines; banking crises; unanticipated decline in price level 
B)  unanticipated decline in price level; banking crises; increase in interest rates 
C)  banking crises; increase in interest rates; unanticipated decline in price level 
D)  banking crises; increase in uncertainty; increase in interest rates 
A)  asset price declines; banking crises; unanticipated decline in price level 
B)  unanticipated decline in price level; banking crises; increase in interest rates 
C)  banking crises; increase in interest rates; unanticipated decline in price level 
D)  banking crises; increase in uncertainty; increase in interest rates

Question 18

When financial intermediaries deleverage,firms cannot fund investment opportunities resulting in ________.

Accepted Answer

A)  a contraction of economic activity 
B)  an economic boom 
C)  an increased opportunity for growth 
D)  a call for government regulation 
A)  a contraction of economic activity 
B)  an economic boom 
C)  an increased opportunity for growth 
D)  a call for government regulation

Question 19

The housing price bubble ________.

Accepted Answer

A)  was aided by low interest rates on residential mortgages 
B)  only occurred in the emerging economies 
C)  was not a contributing factor to the 2007-2008 recession 
D)  cannot be explained 
A)  was aided by low interest rates on residential mortgages 
B)  only occurred in the emerging economies 
C)  was not a contributing factor to the 2007-2008 recession 
D)  cannot be explained

Question 20

The economy recovers quickly from most recessions,but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The Great Depression.

Accepted Answer

A)  debt deflation 
B)  illiquidity 
C)  an improvement in banks' balance sheets 
D)  increases in bond prices 
A)  debt deflation 
B)  illiquidity 
C)  an improvement in banks' balance sheets 
D)  increases in bond prices

Exam 9: Financial Crises

During Ireland's financial crisis,housing prices ________.

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?

An important factor leading up to the Mexican financial crisis of 1994-1995 was ________.

How do increases in interest rates play a role in promoting financial crises?

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

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

In recent years,a number of developing and transition countries have experienced financial crises,the most dramatic of which was the ________.

What two key factors trigger speculative attacks leading to currency crises in emerging market countries?

________ is the development of new,sophisticated financial instruments.

Between October 2007 and March 2009,asset prices fell by ________.

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

Credit default swaps ________.

A decline in asset prices can lead to ________.

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

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

Argentina's financial crisis was due to ________.

A possible sequence for the three stages of a financial crisis in Canada might be ________ leads to ________ leads to ________.

When financial intermediaries deleverage,firms cannot fund investment opportunities resulting in ________.

The housing price bubble ________.

The economy recovers quickly from most recessions,but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The Great Depression.

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 possible sequence for the three stages of a financial crisis in Canada might be leads to leads to .