The 2008 Financial Crisis Quiz

What was the fatal mistake made by the US government in 1999 that played a major role in the financial collapse?

• Relaxing liquidity requirements for investment banks

• Increasing interest rates

• Lowering lending requirements for low-income earners

• Repealing the law that stopped commercial banks from taking part in investment banking activities

What was the result of the dot-com bubble in March 2000?

• A surge in internet company profits

• A rapid increase in economic problems in America

• A decrease in trust in the economy

• A crash in the stock market

What was the aim of lowering interest rates to one percent by the Federal Reserve?

• To increase profits for investment banks

• To relax credit scores for mortgage loans

• To decrease discrimination against poorer home borrowers

• To increase spending and recover confidence in the American economy

What were mortgage lenders doing to save their profit margins as the money flowed in and time went on?

• Relaxing credit scores to get more people in the door

• Increasing interest rates for home loans

• Investing in high yield products

• Selling off risky loans to other banks

What were the mortgage-backed securities that investment banks were offering to investors?

• A high yielding product offered to low-income earners

• A financial instrument designed by mathematicians and physicists

• A type of insurance against failed mortgage debt products

• A bundle of individual mortgage debts sold as shares

What was the fatal flaw of the collateralized debt obligation (CDO) products?

• They were filled with risky subprime loans

• They were rated as low quality by credit rating agencies

• They were designed by investment banks

• They were regulated by the SEC

What was the role of credit rating agencies in the financial crisis?

• They prevented the collapse of the real economy

• They were responsible for the bankruptcy of investment banks

• They regulated the financial assets and products

• They rated debt boxes as extremely safe, leading to widespread investment

What did the SEC do in 2004 that significantly increased the financial leverage of investment banks?

• Relaxed the liquidity requirements of five banks

• Increased interest rates for adjustable rate loans

• Banned the sale of mortgage-backed securities

• Regulated the credit default swaps market

What caused the rapid devaluation of the financially engineered products in 2007?

• Rising interest rates and low income subprime customers

• The dot-com bubble crash

• The increase in financial leverage of investment banks

• The relaxation of liquidity requirements for investment banks

What was the outcome of the high default rates by homeowners in 2007?

• A rapid devaluation of the financially engineered products

• A decrease in trust in the economy

• A rapid increase in home prices

• A surge in demand for mortgage loans