Question 1

Securitization is the practice of:

Accepted Answer

A)   packaging individual debts into a single uniform asset that can be easily bought and sold.
B)   guaranteeing government repayment of risky home loans made to individuals with lower credit.
C)   borrowing based on expected future earnings.
D)   backing a security with a riskless asset.E) B) and C)
F) All of the above

Question 2

If you lost 10 percent on $200 worth of stock in a 2x margin account, then you would:

Accepted Answer

A)   lose $20.
B)   gain $20.
C)   lose $40.
D)   gain $40.E) B) and D)
F) B) and C)

Question 3

A bubble occurs when:

Accepted Answer

A)   an asset is not being traded very heavily.
B)   financial advisors purposely deceive the public and sell a worthless asset.
C)   financial markets are trading an asset at a much higher than historically justifiable price.
D)   a limited number of people are buying an asset, causing the market to crash.E) None of the above
F) All of the above

Question 4

When investors follow a "herd instinct," they:

Accepted Answer

A)   invest in something as a group, making it appear more valuable than it is.
B)   quickly move from one investment to another as a group.
C)   invest in something simply because everyone else is doing it.
D)   only makes decisions as a group, making it hard to determine individual behavior.E) A) and B)
F) A) and C)

Question 5

Tranching allows packages of reliable, low-risk mortgages to be sold to _______ and higher-risk subprime mortgages to___________.

Accepted Answer

A)   risk-averse investors; risk-loving investors
B)   risk-loving investors; risk-averse investors
C)   national banks; local banks
D)   local banks; the governmentE) A) and D)
F) None of the above

Question 6

In 2008, several banks had a:

Accepted Answer

A)   liquidity problem, but they were able to lend after a change in the reserve requirement.
B)   confidence problem, and they would not lend enough to keep from going bankrupt.
C)   solvency problem, and they eventually went bankrupt as a result.
D)   reserve problem, and they did not have enough funds on hand to keep from going bankrupt.E) None of the above
F) All of the above

Question 7

Banks lost trillions of dollars after the housing bubble burst because:

Accepted Answer

A)   foreign investors pulled their money out of U.S. banks en masse.
B)   many large banks held massive quantities of mortgage-backed securities.
C)   many large banks experienced a bank run in the wake of the crisis.
D)   the government removed subsidies that had previously been provided to banks.E) None of the above
F) A) and C)

Question 8

Foreclosure occurs when a(n) :

Accepted Answer

A)   bank takes ownership of a property because the property owner defaults on the mortgage loan.
B)   property owner is forced to sell a house for less than what was paid for it.
C)   investor sells a high-risk asset before its full return is realized.
D)   buyer decides not to purchase a house before the close date.E) B) and C)
F) A) and B)

Question 9

From 1922 to 1929, the total value of the stock market:

Accepted Answer

A)   more than tripled.
B)   decreased by nearly 50 percent.
C)   decreased by nearly 90 percent.
D)   stayed the same.E) A) and D)
F) A) and C)

Question 10

The stock market crash of 1929 led to:

Accepted Answer

A)   the burst of the South Seas bubble.
B)   the Great Depression.
C)   the Great Recession.
D)   Black Thursday.E) A) and D)
F) A) and B)

Question 11

If you have $100 in an account that offers "2x" margin, you can effectively buy _______ worth of stocks.

Accepted Answer

A)   $200
B)   $25000
C)   $50
D)   $2,000E) B) and D)
F) A) and D)

Question 12

Which of the following contributed to the development of the housing bubble?

Accepted Answer

A)   The recency effect caused homes to be undervalued.
B)   Herd instinct caused everyone to believe home prices would continue to fall.
C)   Securitization removed much of the risk from sellers of subprime mortgages.
D)   All of these contributed to the housing bubble.E) All of the above
F) B) and C)

Question 13

Which of the following was not an effect of the U.S. housing market crash?

Accepted Answer

A)   Lenders stopped making loans.
B)   Many banks went bankrupt due to homeowners not paying their mortgages.
C)   The U.S. economy tipped into the Great Recession.
D)   all Homeowners profited upon selling their houses.E) B) and C)
F) A) and C)

Question 14

Margin calls are more likely to happen when markets are:

Accepted Answer

A)   crashing.
B)   expanding.
C)   stable.
D)   volatile.E) All of the above
F) A) and D)

Question 15

When the Fed injected newly-made money into the economy by buying bonds, it:

Accepted Answer

A)   was practicing quantitative easing.
B)   was enacting expansionary fiscal policy.
C)   was enacting contractionary monetary policy.
D)   raised the reserve requirement.E) B) and C)
F) A) and D)

Question 16

In 2008, the Fed responded to the financial crisis by:

Accepted Answer

A)   offering nearly unlimited short-term financing to any bank that suddenly found itself short on cash.
B)   raising interest rates to encourage saving, so banks would have more money on hand to lend.
C)   taking no additional action, allowing automatic stabilizers to bring the economy back to its long-run equilibrium.
D)   reducing the money supply.E) A) and B)
F) A) and C)

Question 17

Which of the following is not an action taken by Congress in the 1930s to prevent future financial crises?

Accepted Answer

A)   Passage of the Glass-Steagall Banking Act
B)   Formation of the SEC
C)   Formation of the FDIC
D)   Passage of the Federal Reserve ActE) A) and B)
F) C) and D)

Question 18

Debt service is the amount:

Accepted Answer

A)   of time and energy banks spend creating loans.
B)   of interest that needs to be paid over the life of a loan.
C)   of national debt, expressed as a percent of GDP.
D)   that consumers have to pay for their debts.E) A) and D)
F) B) and C)

Question 19

Local banks could pass the risk involved in holding mortgage debts on to an investor with a higher risk tolerance using:

Accepted Answer

A)   mortgage-backed securities.
B)   leveraged securities.
C)   leveraged investments.
D)   government-backed securities.E) None of the above
F) All of the above

Question 20

The changes in aggregate demand and aggregate supply as a result of the housing bubble collapse caused output to:

Accepted Answer

A)   fall dramatically and immediately.
B)   stay the same, since the curves moved in opposite directions.
C)   rise temporarily, then fall.
D)   fall at a relatively slow rate over time.E) All of the above
F) A) and D)

Exam 17: Financialcrisis

Securitization is the practice of:

Correct AnswerverifiedShow Answer

When investors follow a "herd instinct," they:

Correct AnswerverifiedShow Answer

Margin calls are more likely to happen when markets are:

Correct AnswerverifiedShow Answer

Which of the following was not an effect of the U.S. housing market crash?

Correct AnswerverifiedShow Answer

Debt service is the amount:

Correct AnswerverifiedShow Answer

Local banks could pass the risk involved in holding mortgage debts on to an investor with a higher risk tolerance using:

Correct AnswerverifiedShow Answer

Which of the following contributed to the development of the housing bubble?

Correct AnswerverifiedShow Answer

The changes in aggregate demand and aggregate supply as a result of the housing bubble collapse caused output to:

Correct AnswerverifiedShow Answer

Banks lost trillions of dollars after the housing bubble burst because:

Correct AnswerverifiedShow Answer

If you have $100 in an account that offers "2x" margin, you can effectively buy _______ worth of stocks.

Correct AnswerverifiedShow Answer

If you lost 10 percent on $200 worth of stock in a 2x margin account, then you would:

Correct AnswerverifiedShow Answer

When the Fed injected newly-made money into the economy by buying bonds, it:

Correct AnswerverifiedShow Answer

In 2008, the Fed responded to the financial crisis by:

Correct AnswerverifiedShow Answer

In 2008, several banks had a:

Correct AnswerverifiedShow Answer

Foreclosure occurs when a(n) :

Correct AnswerverifiedShow Answer

Which of the following is not an action taken by Congress in the 1930s to prevent future financial crises?

Correct AnswerverifiedShow Answer

Tranching allows packages of reliable, low-risk mortgages to be sold to _______ and higher-risk subprime mortgages to___________.

Correct AnswerverifiedShow Answer

The stock market crash of 1929 led to:

Correct AnswerverifiedShow Answer

A bubble occurs when:

Correct AnswerverifiedShow Answer

From 1922 to 1929, the total value of the stock market:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Tranching allows packages of reliable, low-risk mortgages to be sold to _ and higher-risk subprime mortgages to_____.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified