Financial Crisis Quiz

What is meant by adverse selection in the context of bank lending standards?

• Choosing the best borrowers based on credit scores

• A situation where lenders cannot differentiate between high-risk and low-risk borrowers

• Offering loans only to government-backed projects

• Increasing interest rates to reduce loan applications

Which crisis is highlighted as occurring between 2007-09 in the lesson?

• Global financial crisis

• Post-Soviet transition

• Mexican peso crisis

• Asian financial crisis

According to the graph, which region experienced the most banking crises between 1970 and 2011?

• Asia-Pacific

• Europe

• Latin America-Caribbean

• North America

What type of mortgage is characterized by low initial interest rates that rise significantly after one or two years?

• Fixed-rate mortgages

• Adjustable-rate mortgages

• Interest-only mortgages

• Balloon mortgages

What does the acronym NINJA stand for in the context of loans?

• No Interest, No Job, No Assets

• No Income, No Job, No Assets

• No Investment, No Job, No Assets

• No Insurance, No Job, No Assets

In 2006, what percentage of all mortgage originations was accounted for by subprime lending?

• 10.6%

• 23.5%

• 9.5%

• 22.7%

What was the peak percentage of financial sector earnings in the earnings of S&P 500 companies during the period 2000-2006?

• 30%

• 40%

• 50%

• 60%

What was the purpose of the Glass-Steagall Act of 1933?

• To allow commercial banks to engage in investment banking

• To prohibit commercial banks from engaging in investment banking

• To increase mortgage rates

• To decrease bank reserves

What happened to the Glass-Steagall Act in 1999?

• It was strengthened

• It was revoked

• It was expanded

• It was unchanged

What issue is associated with fat tails in risk management?

• Overestimation of high probability events

• Underestimation of low probability/high impact events

• Accurate prediction of all events

• Normal distribution of events