Exam 5: Current Multinational Financial Challenges: the Credit Crisis of 2007-2009

The authors make it clear that the main source of market failure with collateralized debt obligations lay almost exclusively with the rating agencies.

Alt-A mortgage loans are NOT eligible for sale to GSEs such as Fannie Mae or Freddie Mac.

The authors conclude the chapter with a specific road map for future financial regulation.

A ________ is a financial intermediation device that allowed the participant to borrow short and lend long.

Investment banks and stock brokerages have traditionally been regulated by the

________ is the method of making investments more attractive to prospective buyers by reducing their perceived risk.

The Financial Services Modernization Act of 1999 explicitly allowed corporate combinations of commercial banks with other types of financial institutions such as insurance companies and investment banking firms.

A ________ is a securitized financial instrument that is sold to the market in tranches representing different levels of default risk.

Securitization may degrade credit quality because the process severs the link of lending and repayment (risk and reward)between the originator of the loan and the borrower.

Baring the (hopefully temporary setback of 2008)capital is more mobile today than ever before.