Chapter 10 Banking and the Management of Financial Institutions Essay

Factors Causing Financial Crises1) A major pause in pecuniary commercialises characterized by sharp evenf on the wholes in asset values and libertine failures is cal lead a A) fiscal crisis.2) A financial crisis occurs when an increase in irregular information from a disruption in the financial system A) causes skanky indecorous survival and moral hazard puzzles that make financial markets incompetent of channeling funds efficiently.3) A serious consequence of a financial crisis isA) a contraction in economic practise.4) A sharp declension in the stock market means that the ________ of corporations has f bothen making lenders ________ willing to lend. A) final outlay less5) A sharp stock market decline increases moral hazard incentives A) since acceptation steadys have less to lose if their investments fail.6) An unexpected decline in the price level increases the burden of debt on borrowing firms but does non raise the real value of borrowing firms assets. The declaration is A) that net worth in real terms declines.7) If debt contracts are denominated in contradictory currency, then an unanticipated decline in the value of the internalated currency results in A) a decline in a firms net worth.8) Factors that lead to worsening conditions in financial markets implicate C) the disability in marges end sheets.9) In a bank panic, the radical of contagion is theD) asymmetric information problem.10) A bank panic lowlife lead to a severe contraction in economic activity due to D) a decline in lending for productive investment.11) In addition to having a direct effect on increasing adverse cream problems, increases in come to rates also promote financial crises by ________ firms and baseholds interest payments, thitherby ________ their cash flow. B) increasing decreasing12) In emerging economies, political science fiscal imbalances may cause fears of B) default on authorities debt.9.2 Dynamics of Past U.S. Financial Crises1) When f inancial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a A) consultation boom.2) When the value of contributes begins to drop, the net worth of financial institutions falls causing them to disrupt back on lending in a process called A) deleveraging.3) When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in A) a contraction of economic activity.4) A recognition boom can lead to a(n) ________ such as we cut in the tech stock market in the late 1990s. A) asset-price burble5) Many 19th century U.S. financial crises were started byA) spikes in interest rates.6) Most U.S. financial crises have started during periods of ________ either after the start of a recession or a stock market crash. A) high doubtfulness7) If uncertainty about banks health causes depositors to begin to withdraw their funds from banks, the realm experiences a(n) A) banking crisis.8) Debt deflation occurs whenA) a n economic downturn causes the price level to fall and a deterioration in firms net worth because of the change magnitude burden of indebtedness.9) A significant decrease in the aggregate price level that reduces firms net worth may stall a recovery from a recession. This process is called A) debt deflation.10) A possible sequence for the tercet stages of a financial crisis in the U.S. competency be ________ leads to ________ leads to ________. A) asset price declines banking crises unanticipated decline in price level 11) The economy recovers quickly from most recessions, but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The commodious Depression. A) debt deflation9.3 The Subprime Financial Crisis of 2007-20081) Financial innovations that emerged after 2000 in the mortgage markets included all of the following(a) except A) adjustable-rate mortgages.2) ________ is a process of bundling together micror loans (like mortgages) into standard debt securities. A) Securitization3) A ________ pays out cash flows from subprime mortgage-backed securities in different tranches, with the highest-rated tranch nonrecreational out first, while lower ones paid out less if there were losses on the mortgage-backed securities. A) Collateralized debt obligation (CDO)4) The growth of the subprime mortgage market led toA) increased demand for houses and helped fuel the boom in housing prices.5) The originate-to-distribute care model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk. A) principal-agent6) Mortgage brokers often did not make a strong drive to evaluate whether the borrower could pay off the loan. This created a A) severe adverse selection problem.7) Agency problems in the subprime mortgage market included all of the following except A) homeowners could refinance their houses w ith larger loans when their homes appreciated in value.8) When housing prices began to decline after their peak in 2006, umteen subprime borrowers found that their mortgages were underwater. This meant that A) the value of the house fell below the amount of the mortgage.9) Although the subprime mortgage market problem began in the United States, the first indication of the seriousness of the crisis began in A) Europe.10) Like a CDO, a structured investment vehicle pays off cash flows from pools of assets, however, quite a than long-term debt the structured investment vehicle backs A) technical paper.11) Which investment bank filed for bankruptcy on September 15, 2008 making it the largest bankruptcy filing in U.S. history? A) Lehman Brothers12) The largest bank failure in U.S. history was ________ which went into receivership by the FDIC on September 25, 2008. A) Washington Mutual13) Credit market problems of adverse selection and moral hazard increased as a result of all of the following except A) increase in housing market prices.14) The economical Recovery Act of 2008 had several provisions to promote recovery from the subprime financial crisis. These provisions included all of the following except A) guaranteed all the deposits of the commercial banks.15) The government bailout of troubled financial institutions occurred in theU.S. and many other countries. Which solid ground saw their banking system collapse requiring the government to take over its three largest banks? A) Iceland9.4 Dynamics of Financial Crises in Emerging Market Economies1) Financial crises slackly develop along two basic paths A) misdirection of financial slackening/globalization and severe fiscal imbalances.2) In emerging market countries, the deterioration in banks balance sheets has more ________ effects on lending and economic activity than in advanced countries. A) negative3) The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________. A) principal/agent problem4) Factors likely to cause a financial crisis in emerging market countries include A) fiscal imbalances.5) The two key factors that knowledgeability speculative attacks on emerging market currencies are A) deterioration in bank balance sheets and severe fiscal imbalances.6) Severe fiscal imbalances can directly trigger a currency crisis since A) investors fear that the government may not be able to pay back the debt and so begin to sell house servant currency.7) In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency A) results in increases in the firms indebtedness in domestic currency terms, even though the value of their assets remains unchanged. 8) A sharp depreciation of the domestic currency after a currency crisis leads to A) higher inflation.9) The key factor leading to the financial crises in Mexico and the vitamin EAsian countries was A) a deterioration in banks balance sheets because of increasing loan losses.10) Factors that led to worsening conditions in Mexicos 1994-1995 financial markets include C) increased uncertainty from political shocks.11) Factors that led to worsening financial market conditions in East Asia in 1997-1998 include A) weak supervision by bank regulators.12) Factors that led to worsening conditions in Mexicos 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include A) rise in interest rates afield.13) Argentinas financial crisis was due toC) fiscal imbalances.14) A feature of debt markets in emerging-market countries is that debt contracts are typically ________. A) very short term15) The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as A) increased crime.16) Before the randomness Korean financial crisis, sales by the top five chaebols (family-owned conglomerates ) were A) nearly 50% of GDP.17) The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by A) allowing unlimited short-term foreign borrowing but kept up(p) quantity restrictions on long-term foreign borrowing by financial institutions.18) At the time of the South Korean financial crisis, the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________. A) were not could borrow abroad19) At the time of the South Korean financial crisis, the merchant banks were A) almost virtually unregulated.