WorksheetsIFE S11 The Financial Crisis
Total questions: 10
Worksheet time: 10mins
Which one of the following was NOT a contributory factor in the 2008 financial crisis?
Mortgage lending to house buyers who were extremely unlikely to be able to pay their mortgage obligations.
Scarcity in the global supply of gold mined in Alaska.
Over-optimistic ratings by the credit rating agencies.
Financial instruments backed by intangible assets, so that if the instrument itself failed, there were no assets to cover the deficit.
Which one of the following statements is incorrect?
The 2008 financial crisis was caused by the Chinese government buying too many US government bonds.
One of the triggers for the sub-prime crisis was the use of low introductory mortgage rates; when they expired, the mortgagees were unable to pay the increased payments.
Northern Rock took on too many mortgages without sufficient collateral and were unable to continue financing existing mortgage liabilities.
Bear Sterns relied on the repo market to finance its mortgage loans, using mortgage-backed bonds as collateral for loans.
Which one of the following was not a cause for the 2008 financial crisis?
Mortgages being sold on by their originating organisation and not being kept on its books as an asset/liability.
The increasing complexity and interconnectivity of financial instruments.
Easy availability of mortgages.
The bonuses paid to employees of pension funds.
SIV is the acronym for…
Special Interest Vehicle.
Special Investment Value.
Structured Investment Vehicle.
Structured Interest Valuation.
Which one of the following best describes subprime mortgage lending?
A bank lending to someone who is not one of their customers.
Lending to people to buy houses who are at greater risk of being unable to meet the repayments.
Lending on overvalued properties.
Lending to people who do not have a bank account.
A serious consequence of a financial crisis is…
financial globalisation.
financial engineering.
an economic recession.
increase in asset prices.
If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences…
a financial recovery.
a banking crisis.
a reduction of the adverse selection and moral hazard problems.
an increase in information available to investors.
Debt deflation occurs when…
lenders reduce their lending due to declining stock prices that lowers the value of collaterals.
rising interest rates worsen adverse selection and moral hazard problems.
corporations pay back their loans before the scheduled maturity date.
an economic downturn causes the price level to fall and a deterioration in firms' net worth because of the increased burden of indebtedness.
A possible sequence for the three stages of a financial crisis in an advanced economy might be ________ leads to ________ leads to ________.
banking crises, increase in interest rates, unanticipated decline in price level
unanticipated decline in price level, banking crises, increase in interest rates
banking crises, increase in uncertainty, increase in interest rates
asset price declines, banking crises, unanticipated decline in price level
Which one was NOT an agency problem in the subprime mortgage market?
The evaluators of securities, the credit rating agencies, were subject to conflicts of interest.
Mortgage originators had little incentives to make sure that the mortgage is a good credit risk.
Underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back.
Homeowners could remortgage their houses with larger loans when their homes appreciated in value.
