Question 1 of 33 1 0 1 0 Points Lenders of last resort intend to A add liquidity to financial markets B restore confidence in financial markets C lower interest rates D all of the above Answer Key D Question 2 of 33 1 0 1 0 Points By allowing Lehman to fail the Federal Reserve worsened the moral hazard problem between regulators and financial institutions Answer Key False Question 3 of 33 1 0 1 0 Points Asymmetric information problems are more severe during a financial panic A True B False A True B False Answer Key True Question 4 of 33 1 0 1 0 Points 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 D all of the above Answer Key D Question 5 of 33 1 0 1 0 Points 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 D all of the above Answer Key B Question 6 of 33 1 0 1 0 Points Loan calls are more likely during a panic A True B False A True B False A True B False Answer Key True Question 7 of 33 1 0 1 0 Points Changes in stock prices are always the result of changes in fundamentals Answer Key False Question 8 of 33 1 0 1 0 Points 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 1 0 1 0 Points The Federal Reserve was forced to take over AIG to alleviate the panic in 2008 Answer Key False Question 10 of 33 1 0 1 0 Points 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 D all of the above Answer Key D Question 11 of 33 1 0 1 0 Points Under water means an investor has negative equity Answer Key True Question 12 of 33 1 0 1 0 Points The stock market crash of 1929 turned into a systemic crisis Answer Key True Question 13 of 33 1 0 1 0 Points Higher expected future stock prices can lead to increasing prices without any change in the profitability of the firms Answer Key True Question 14 of 33 1 0 1 0 Points A financial panic causes a lack of liquidity Answer Key True Question 15 of 33 0 0 1 0 Points A corporate bond is an example of a securitized asset A True B False A True B False A True B False A True B False A True B False Answer Key False Question 16 of 33 1 0 1 0 Points Higher leverage can give investors higher returns during a bubble A True B False A True B False A True B False A True B False A True B False Answer Key True Question 17 of 33 1 0 1 0 Points Leverage increases both risk and return for investors Answer Key True Question 18 of 33 1 0 1 0 Points MBS stands for mortgage backed securities Answer Key True Question 19 of 33 1 0 1 0 Points Lower levels of leverage can make a financial panic more severe Answer Key False Question 20 of 33 0 0 1 0 Points The financial panic of 2007 2008 is a systemic crisis Answer Key True Question 21 of 33 1 0 1 0 Points The Federal Reserve is the most common lender of last resort A True B False A True B False Answer Key True Question 22 of 33 1 0 1 0 Points A cause of the financial crisis of 2007 2008 was the general belief that housing prices would rise indefinitely Answer Key True Question 23 of 33 1 0 1 0 Points Subprime mortgages refer to home loans A to high risk borrowers B for real estate with rising prices C at below market interest rates D all of the above Answer Key A Question 24 of 33 1 0 1 0 Points 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 Answer Key C Question 25 of 33 1 0 1 0 Points 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 D all of the above Answer Key D 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 D all of the above Answer Key D Question 27 of 33 1 0 1 0 Points 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 D all of the above 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 Answer Key C Question 29 of 33 1 0 1 0 Points 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 1 0 1 0 Points 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 1 0 1 0 Points 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 Answer Key C Question 32 of 33 1 0 1 0 Points The global derivatives market is estimated at A 1 trillion B 15 trillion C 1 200 trillion Answer Key C Question 33 of 33 1 0 1 0 Points In the recent financial crisis the widespread use of derivatives greatly magnified and spread the impact of losses on sub prime mortgages A True B False Answer Key True