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 that led to worsening financial market conditions in East Asia in 1997-1998 include

Accepted Answer

A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks. 
A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks. A

Question 3

Factors that lead to worsening conditions in financial markets include:

Accepted Answer

A) declining interest rates. 
B) unanticipated increases in the price level. 
C) the deterioration in banks' balance sheets. 
D) increases in bond prices. 
A) declining interest rates. 
B) unanticipated increases in the price level. 
C) the deterioration in banks' balance sheets. 
D) increases in bond prices. C

Question 4

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

Question 5

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 6

The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________.

Accepted Answer

A) principal/agent problem 
B) asymmetric information problem. 
C) lemons problem. 
D) free-rider problem. 
A) principal/agent problem 
B) asymmetric information problem. 
C) lemons problem. 
D) free-rider problem.

Question 7

________ is a process of bundling together smaller loans (like mortgages)into standard debt securities.

Accepted Answer

A) Securitization 
B) Origination 
C) Debt deflation 
D) Distribution 
A) Securitization 
B) Origination 
C) Debt deflation 
D) Distribution

Question 8

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 9

The largest bank failure in U.S.history was ________ which went into receivership by the FDIC on September 25,2008.

Accepted Answer

A) Washington Mutual 
B) Bank of America 
C) J.P.Morgan 
D) Wells Fargo 
A) Washington Mutual 
B) Bank of America 
C) J.P.Morgan 
D) Wells Fargo

Question 10

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 11

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 12

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 13

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 14

Debt deflation occurs when

Accepted Answer

A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness. 
B) rising interest rates worsen adverse selection and moral hazard problems. 
C) lenders reduce their lending due to declining stock prices (equity deflation)that lowers the value of collateral. 
D) corporations pay back their loans before the scheduled maturity date. 
A) an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness. 
B) rising interest rates worsen adverse selection and moral hazard problems. 
C) lenders reduce their lending due to declining stock prices (equity deflation)that lowers the value of collateral. 
D) corporations pay back their loans before the scheduled maturity date.

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

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

Accepted Answer

The deterioration in bank balance sheets

Question 17

A possible sequence for the three stages of a financial crisis in the U.S.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

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies ________ allowed to borrow abroad and merchant banks ________.

Accepted Answer

A) were not; could borrow abroad 
B) were not; could not borrow abroad 
C) were; could borrow abroad 
D) were; could not borrow abroad 
A) were not; could borrow abroad 
B) were not; could not borrow abroad 
C) were; could borrow abroad 
D) were; could not borrow abroad

Question 19

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 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 and the Subprime Meltdown

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

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

Factors that lead to worsening conditions in financial markets include:

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.

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

The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________.

________ is a process of bundling together smaller loans (like mortgages)into standard debt securities.

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

The largest bank failure in U.S.history was ________ which went into receivership by the FDIC on September 25,2008.

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

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

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

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

Debt deflation occurs when

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

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

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

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies ________ allowed to borrow abroad and merchant banks ________.

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

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 for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

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

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks.Finance companies allowed to borrow abroad and merchant banks .