Question 1 of 33 Lenders of last resort intend to A.add liquidity to financial markets. B.restore confidence in financial markets. C.lower interest rates. Question 2 of 33 By allowing Lehman to fail, the Federal Reserve worsened the moral hazard problem between regulators and financial institutions. Question 3 of 33 Asymmetric information problems are more severe during a financial panic. Question 4 of 33 Loans to and purchases of preferred stock from banks and financial institutions by treasury and the Fed were intended to A.increase the capital in financial institutions. B.restore confidence in financial markets. C.prevent insolvencies. Question 5 of 33 When the Fed bought commercial paper (short term loans to established firms) they were A.engaged in a bailout. B.operating as a lender of last resort. C.decreasing the money supply.
Answer Key: B Question 6 of 33 Loan calls are more likely during a panic. Question 7 of 33 Changes in stock prices are always the result of changes in fundamentals. Question 8 of 33 Which of the following institutions was allowed to fail? A.AIG B.Lehman Brothers C.Bear Stearns D.none of the above Answer Key: B Question 9 of 33 The Federal Reserve was forced to take over AIG to alleviate the panic in 2008. Question 10 of 33 The housing bubble leading up to the financial crisis of 2007 2008 was exacerbated by A.easy monetary policy. B.Fannie and Freddie's purchase of MBS. C.loose private sector lending standards.
Question 11 of 33 "Under water" means an investor has negative equity. Question 12 of 33 The stock market crash of 1929 turned into a systemic crisis. Question 13 of 33 Higher expected future stock prices can lead to increasing prices without any change in the profitability of the firms. Question 14 of 33 A financial panic causes a lack of liquidity. Question 15 of 33 0.0/ 1.0 Points A corporate bond is an example of a securitized asset.
Question 16 of 33 Higher leverage can give investors higher returns during a bubble. Question 17 of 33 Leverage increases both risk and return for investors. Question 18 of 33 MBS stands for mortgage backed securities. Question 19 of 33 Lower levels of leverage can make a financial panic more severe. Question 20 of 33 0.0/ 1.0 Points The financial panic of 2007 2008 is a systemic crisis. Question 21 of 33
The Federal Reserve is the most common lender of last resort. Question 22 of 33 A cause of the financial crisis of 2007 2008 was the general belief that housing prices would rise indefinitely. Question 23 of 33 Subprime mortgages refer to home loans A.to high risk borrowers. B.for real estate with rising prices. C.at below market interest rates. Answer Key: A Question 24 of 33 Which government action is usually tried first in a financial crisis? A.changing the reserve requirement B.bailout C.lender of last resort D.none of the above Question 25 of 33 To help minimize the financial crisis of 2008, the government has A.lent money to replace private sector funds. B.bailed out failing financial institutions. C.lowered interest rates. Question 26 of 33
0.0/ 1.0 Points A stock market bubble can start due to A.low interest rates. B.high expected dividends. C.high levels of lending. Question 27 of 33 During a housing bubble, people continue to buy houses because A.they expect house price to continue to rise. B.they are able to get loans at high interest rates. C.the government guarantees house value won't fall. Answer Key: A Question 28 of 33 0.0/ 1.0 Points Ignoring borrowing costs, an investor who borrower half the funds to invest in an asset that rises from $200 to $300 makes an effective rate of return of A.30%. B.50%. C.100%. D.300%. Question 29 of 33 One interpretation of the financial crisis is that it was A.a traditional bank run B.a run on the shadow banking (non bank financial) system C.a stock market bubble D.a rational bubble Answer Key: B Question 30 of 33 The fact that Lehman and other financial institutions were borrowing short term funds to make long term investments is referred to as A.bankruptcy run B.funding mismatch C.insolvency D.mis funding Answer Key: B
Question 31 of 33 Converting a security that doesn't trade like a mortgage into a tradeable security, like a bond, is called A.convertible bond B.tradeability C.securitization D.liquidation Question 32 of 33 The global derivatives market is estimated at A.$1 trillion B.$15 trillion C.$1,200 trillion Question 33 of 33 In the recent financial crisis, the widespread use of derivatives greatly magnified and spread the impact of losses on sub prime mortgages