Question 1

As the housing bubble collapsed, the cycle of defaults and falling prices began that would ultimately cause home values to:

Accepted Answer

A)   fall by more than 90 percent in the hardest-hit areas.
B)   stop rising, practically halting the mortgage loan industry for a number of years.
C)   fall by more than 50 percent in the hardest-hit areas.
D)   fall by about 25 percent in the hardest-hit areas.E) B) and C)
F) All of the above

Question 2

The English Parliament regulates companies that trade stock publicly through a law known as the:

Accepted Answer

A)   Leverage Act.
B)   Bubble Act.
C)   Company Act.
D)   Anti-Corruption Act.E) None of the above
F) All of the above

Question 3

If you have $1,000 in an account that offers "3x" margin, you can effectively buy:

Accepted Answer

A)   $1,000 worth of stocks.
B)   $2,000 worth of guaranteed government bonds.
C)   $3,000 worth of stocks.
D)   $3,000 worth of guaranteed government bonds.E) B) and C)
F) All of the above

Question 4

One of the first issuances of stock was offered by the:

Accepted Answer

A)   East India Company.
B)   South Seas Company.
C)   Apple Company.
D)   North Seas Company.E) A) and D)
F) C) and D)

Question 5

The level of household debt incurred over the two decades leading up to the 2008 crisis was only sustainable if interest rates:

Accepted Answer

A)   remained low and housing prices remained high.
B)   and housing prices both remained high.
C)   and housing prices both remained low.
D)   remained high and housing prices remained low.E) None of the above
F) A) and D)

Question 6

A margin call is when:

Accepted Answer

A)   it looks like you are in danger of running through your money, and your broker forces you to sell your stock and use the money to pay back your loan.
B)   the market reaches a tipping point, and the financial bubble bursts.
C)   prices on future values of a stock are forecasted to be lower than current prices.
D)   prices on future values of a stock are forecasted to be higher than current prices.E) A) and B)
F) B) and C)

Question 7

The introduction of the practice of securitization allowed:

Accepted Answer

A)   banks to more safely assume subprime mortgage loans.
B)   the government to promote a sense of security in the banking industry.
C)   banks to more safely leverage their investments.
D)   borrowers to feel better about taking out subprime loans.E) None of the above
F) B) and C)

Question 8

Debt service is the amount:

Accepted Answer

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

Question 9

When the housing bubble collapsed, the entire borrowing and lending engine of the economy ground to a halt because:

Accepted Answer

A)   no one could tell which banks were safe, and which were not.
B)   banks wanted to lend to no one, in case they turned out to be a bad risk.
C)   the herd instinct became to not borrow or lend.
D)   All of these statements are true.E) B) and C)
F) C) and D)

Question 10

Historically, household debt in the U.S. had been:

Accepted Answer

A)   rising steadily since the Great Depression until the early 2000s, when it accelerated.
B)   rising steadily since the Great Depression until the early 2000s, when it declined.
C)   fairly constant since the Great Depression until the early 2000s, when it accelerated.
D)   fairly constant since the Great Depression until the early 2000s, when it declined.E) A) and C)
F) A) and D)

Question 11

Which of the following actions did Congress take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

Accepted Answer

A)   Glass-Steagall Banking Act
B)   Bubble Act
C)   Hastings Banking Act
D)   Formation of the CBO (Congressional Budget Office) E) B) and D)
F) A) and B)

Question 12

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) A) and B)
F) A) and C)

Question 13

The same tools that were intended to allocate funds and spread risk more efficiently in the housing market made it:

Accepted Answer

A)   easier to keep everyone fully informed.
B)   more difficult to keep everyone fully informed.
C)   easier to understand the true risk involved with these assets.
D)   more difficult to justify buying mortgage-backed securities over other low-risk assets.E) None of the above
F) All of the above

Question 14

The practice of packaging individual debts into a single uniform asset that can be easily bought and sold is called:

Accepted Answer

A)   leveraging.
B)   securitization.
C)   federally-backed financing.
D)   bundled risk.E) C) and D)
F) A) and C)

Question 15

During most of the 1990s and 2000s, the trend in interest rates was:

Accepted Answer

A)   sharply downward.
B)   mildly downward.
C)   mildly upward.
D)   just about constant.E) B) and D)
F) B) and C)

Question 16

As the housing bubble collapsed, as more foreclosures occurred, and the supply of homes for sale:

Accepted Answer

A)   increased, it further decreased home values, which led to more foreclosures.
B)   increased, the price of homes fell, and so the demand for homes increased.
C)   decreased, as homeowners no longer wanted to sell their homes when prices were low.
D)   decreased, as homeowners refused to sell when they owed more than the market value.E) C) and D)
F) B) and D)

Question 17

Because local banks earn fees for each loan, their role to:

Accepted Answer

A)   properly assess the risk of each borrower is misaligned with their incentive.
B)   create not many mortgages perfectly aligns with their incentives.
C)   provide mortgage loans only to those with low credit scores is misaligned with their incentive.
D)   properly assess the risk of each borrower is perfectly aligned with their incentive.E) All of the above
F) A) and D)

Question 18

When your broker sees that you are in danger of running through your money and forces you to sell your stock and use the money to pay back your loan, he is making a:

Accepted Answer

A)   margin call.
B)   leverage call.
C)   stock sales call.
D)   futures call.E) A) and D)
F) A) and C)

Question 19

If the efficient-market hypothesis is true, then the idea of:

Accepted Answer

A)   herd instinct holds.
B)   herd instinct doesn't always hold.
C)   tulip mania holds.
D)   tulip mania doesn't always hold.E) None of the above
F) All of the above

Question 20

When investors become irrationally optimistic that an asset's price will continue to rise, it causes a financial bubble to:

Accepted Answer

A)   start to inflate.
B)   be on the verge of bursting.
C)   burst.
D)   become doubted by most serious investors.E) A) and B)
F) All of the above

Exam 17: Financial Crisis

Debt service is the amount:

Correct AnswerverifiedShow Answer

The practice of packaging individual debts into a single uniform asset that can be easily bought and sold is called:

Correct AnswerverifiedShow Answer

When your broker sees that you are in danger of running through your money and forces you to sell your stock and use the money to pay back your loan, he is making a:

Correct AnswerverifiedShow Answer

The introduction of the practice of securitization allowed:

Correct AnswerverifiedShow Answer

When investors become irrationally optimistic that an asset's price will continue to rise, it causes a financial bubble to:

Correct AnswerverifiedShow Answer

During most of the 1990s and 2000s, the trend in interest rates was:

Correct AnswerverifiedShow Answer

As the housing bubble collapsed, as more foreclosures occurred, and the supply of homes for sale:

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

As the housing bubble collapsed, the cycle of defaults and falling prices began that would ultimately cause home values to:

Correct AnswerverifiedShow Answer

The level of household debt incurred over the two decades leading up to the 2008 crisis was only sustainable if interest rates:

Correct AnswerverifiedShow Answer

Because local banks earn fees for each loan, their role to:

Correct AnswerverifiedShow Answer

One of the first issuances of stock was offered by the:

Correct AnswerverifiedShow Answer

A margin call is when:

Correct AnswerverifiedShow Answer

If you have $1,000 in an account that offers "3x" margin, you can effectively buy:

Correct AnswerverifiedShow Answer

Historically, household debt in the U.S. had been:

Correct AnswerverifiedShow Answer

The same tools that were intended to allocate funds and spread risk more efficiently in the housing market made it:

Correct AnswerverifiedShow Answer

If the efficient-market hypothesis is true, then the idea of:

Correct AnswerverifiedShow Answer

When the housing bubble collapsed, the entire borrowing and lending engine of the economy ground to a halt because:

Correct AnswerverifiedShow Answer

The English Parliament regulates companies that trade stock publicly through a law known as the:

Correct AnswerverifiedShow Answer

Which of the following actions did Congress take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

Correct AnswerverifiedShow Answer

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