Reference no: EM13342824

Question 1
According to Blinder the Fed was skeptical of Lehman's solvency at the end of May, 2008.
True or False?

Question 2
There was a bubble in MBS values as well as home values that grew between 2004 and 2008.
True or False?

Question 3
According to the 10-Q filed by WMI Holdings Corp on 8/11/2008 the access the bank had to some sources of liquidity were dependent on third party credit ratings of the company's debt obligations.
True or False?

Question 4
Securitization transforms illiquid financial instruments into liquid securities.
True or False?

Question 5
The securitization of financial assets including sub-prime mortgages shifted risk from the banks that originated the loans to the borrowers.
True or False?

Question 6
According to the Financial Accounts of the United States U.S.-chartered depository institutions; vault cash and reserves at the Federal Reserve increased from $5.107 billion in 2007 to $1.2 trillion in 2008.
True or False?

Question 7
Alan Blinder places part of the blame for the financial crisis on Moody's but praises Standard and Poor's. He argues that Standard and Poor's never gave AAA ratings to CDOs that were backed by subprime MBS. Blinder puts the blame on the incompetence of Moody's analysts.
True or False?

Question 8
According to the 10-Q filed by Citigroup Inc. 10/31/2008 Citigroup missed interest payments on its unsecured debt.
True or False?

Question 9
The recent bubble in real estate could not have occurred if both lenders and borrowers had not agreed that real estate prices.
a.Would remain static.
b.Would soon decline.
c.Would become quite volatile in the short run.
d.Would continue to increase.

Question 10
In March of 2008 the spread between the Fed Funds rate and the one month Treasury bill was:
a.186 basis points.
b.111 basis points
c.121 basis points
d.-343 basis points

Question 11
The Federal Reserve refused to act as lender of last resort during the last crisis because Bernanke believed that bank executives had ripped off society. In addtion Bernanke feared the long term affects of moral hazard.
True or False?

Question 12
According to Alan Blinder the compensation schemes at investment banks linked the wealth of bankers to the risks of the assets the bank securitized. This is why the crisis of 2007-2009 never reached the same proportions as the crisis of the 1930s. In addition the partnership structure of investment banks during the 1920s increased the principle agent problem.
True or False?

Question 13
The reason the financial crisis of 2007 was so much worse than the crisis of 1907 was that depositors withdrew money in the fall of 2007 when the market for asset-backed securities collapsed.
True or False?

Question 14
Sub-prime mortgage originators such as New Century were net lenders in the Repo market. When the Repo market collapsed this hurt an important source of revenue for New Century.
True or False?

Question 15
During periods of financial distress investors tend to sell risky assets and buy safe assets. This flow of funds from risky assets to safer assets;
a.Reduces the cost of borrowing for businesses and for the Federal Government.
b.Increases the cost of borrowing for businesses and for Federal Government.
c.Reduces the cost of borrowing for the Federal Government and increases the cost of borrowing for the private sector.
d.Increases the cost of borrowing for the Federal Government.

Question 16
Repo lenders require collateral as security. Often this security was MBS. When the MBS began to lose value in 2008 as ratings were lowered; lenders required borrowers to post additional collateral. As lenders sold assets to raise cash collateral values fell further requiring additional sales. This downward spiral in debt prices is indicative of a worsening financial crisis.
True or False?

Question 17
The spread between yields on Aaa rated corporate debt and Baa corporate debt were at their peak in:
a.1942
b.1932
c.1929
d.2008

Question 18
A credit default swap seller (short) makes a commitment to pay the buyer (long) if a credit event occurs. The buyer pays a periodic premium to the seller.
True or False?

Question 19
A financial institution is insolvent when the market value of its assets is less than the market value of its liabilities.
True or False?

Question 20
The decline in home values since 2007 led to serious financial distress in the household sector and the banking sector because:
a.The decline led to a decrease in the debt/equity ratio of both households and banks.
b.The decline led to an increase in the debt/equity ratio of both households and banks.
c.The decline lowered the demand for housing.
d. The decline increased the value of mortgage-backed securities and corporate bonds.

Question 21
A financial institution is insolvent when the book value of its assets is less than the book value of its liabilities.
True or False?

Question 22
This statement from the 10-K filed by Bear Stearns for the Fiscal year 2007 indicates that management was aware that the firm
was exposed to a run by other banks. "An inability to raise money in the long-term or short-term debt markets,
or to engage in repurchase agreements or securities lending, could have a substantial negative effect on our liquidity."
True or False?

Question 23
According to the Financial Accounts of the United States the financial assets of security broker-dealers fell by over $1 trillion in the fourth quarter of 2008.
True or False?

Question 24
Securitization eliminates credit and interest rate from the financial system. This is one of the great benefits of securitization.
True or False?

Question 25
Repo lending is a source of short term capital for financial institutions. When this capital dried up Lehman and Bear switched to equity finance and this caused the stock market to collapse in the spring of 2009.
True or False?

Question 26
The spread between 3 month treasury securities and 3 month financial commercial paper increased from 10 basis points in June of 2003 to 400 basis points in October of 2008.
True or False?

Question 27
Between June of 2008 and December of 2008 financial commercial paper outstanding (Financial commercial paper outstanding (CP/OUTST/DTBSPCKF_N.M) declined from approximately $849 billion to approximately $700 billion.
True or False?

Question 28
Originators of subprime mortgages relied on the repo market to warehouse loans prior to their sale or securtization of the originated assets.
True or False?

Question 29
Commercial bank lending rose by $50 million in the second quarter of 2009.
True or False?

Question 30
Investors extrapolated the favorable default experience of MBS over the years from 2004-2006 into the indefinite future. This caused investors to overpay for MBS. This contributed to the bond bubble that burst in 2008.
True or False?

Question 31
Repurchase agreements are used by investment banks as source of liquidity. A bank that wants to borrow funds sells assets to a lender promising to buy the assts back. The sale price is always higher than the repurchase price
True or False?

Question 32
Financial institutions that rely on REPOs are forced to go back to the market regularly to roll over maturing paper. This is a risk to the firm since fear of lenders can create a severe liquidity crisis for the borrowing firm.
True or False?

Question 33
Once Bear Stearns collapsed the spread between the yield on 1 month commercial paper and one treasury bills continued to steadily widen until May of 2009 when it stabilized.
True or False?

Question 34
According to the Financial Accounts of the United States the treasury securities held by security broker-dealers increased by over $500 billion in the fourth quarter of 2008.
True or False?

Question 35
According to the Financial Accounts of the United States; open market paper owned by money market mutual funds declined by $594,156,800,000 in the third quarter of 2008.
True or False?

Question 36
The largest quarterly drop in real GDP since 1979 was in the first quarter of 2009 at -6.4%.
True or False?