Question 1

Which of the following is true?

Accepted Answer

A) As confidence grows, spending units rely less on borrowed funds and reduce their debt-to-income ratios. 
B) The mixture of hedge, speculative, and Ponzi spending units determines the overall health of the economy. 
C) National wealth includes financial liabilities. 
D) Speculative spending units are more at risk than Ponzi spending units. 
A) As confidence grows, spending units rely less on borrowed funds and reduce their debt-to-income ratios. 
B) The mixture of hedge, speculative, and Ponzi spending units determines the overall health of the economy. 
C) National wealth includes financial liabilities. 
D) Speculative spending units are more at risk than Ponzi spending units.

Question 2

A Ponzi spending unit is a spending unit

Accepted Answer

A) where the anticipated revenues significantly exceed the anticipated payment obligations. 
B) is one in which the funds coming in may potentially fall short of the payment outflows if there is an increase in interest rates. 
C) must continuously increase its outstanding debt to meet its current obligations or payments. 
D) None of the above is correct. 
A) where the anticipated revenues significantly exceed the anticipated payment obligations. 
B) is one in which the funds coming in may potentially fall short of the payment outflows if there is an increase in interest rates. 
C) must continuously increase its outstanding debt to meet its current obligations or payments. 
D) None of the above is correct.

Question 3

The FDIC presently insures deposits up to what amount?

Accepted Answer

A) $25,000 per account 
B) $50,000 per account 
C) $250,000 per account 
D) $1,000,000 per account 
A) $25,000 per account 
B) $50,000 per account 
C) $250,000 per account 
D) $1,000,000 per account

Question 4

In 1999 dollars, the estimated cost to taxpayers of the Savings and Loan bailout was

Accepted Answer

A) $124 million 
B) $124 billion 
C) less than initially estimated. 
D) Both b and c are correct. 
A) $124 million 
B) $124 billion 
C) less than initially estimated. 
D) Both b and c are correct.

Question 5

Which of the following statements about derivatives is false?

Accepted Answer

A) Derivatives are financial contracts the values of which are derived from the values of other underlying assets. 
B) Examples of derivatives include futures, options, and combinations thereof. 
C) Bank participation in derivative markets is severely limited because of the inherent riskiness of the instruments. 
D) Derivatives can be used to hedge or to speculate. 
A) Derivatives are financial contracts the values of which are derived from the values of other underlying assets. 
B) Examples of derivatives include futures, options, and combinations thereof. 
C) Bank participation in derivative markets is severely limited because of the inherent riskiness of the instruments. 
D) Derivatives can be used to hedge or to speculate.

Question 6

Which of the following is true with regards to the financial meltdown of 2008?

Accepted Answer

A) The financial crisis of 2008 had been in the subprime mortgage markets and later spread to the financial system and the broader economy. 
B) The five largest investment banking firms were merged with other financial institutions, went bankrupt, or converted to bankholding companies to gain access to borrow from the Fed. 
C) A series of unprecedented collapses of financial institutions began that culminated in a massive bailout of the financial system by the government. 
D) All of the above are true. 
A) The financial crisis of 2008 had been in the subprime mortgage markets and later spread to the financial system and the broader economy. 
B) The five largest investment banking firms were merged with other financial institutions, went bankrupt, or converted to bankholding companies to gain access to borrow from the Fed. 
C) A series of unprecedented collapses of financial institutions began that culminated in a massive bailout of the financial system by the government. 
D) All of the above are true.

Question 7

When interest rates rise, the value of long-term bonds

Accepted Answer

A) remains the same. 
B) rises. 
C) falls. 
D) rises at diminishing rates. 
A) remains the same. 
B) rises. 
C) falls. 
D) rises at diminishing rates.

Question 8

The insurance company that insured the deposits in S&Ls until 1989 when it was dissolved because of insolvency is

Accepted Answer

A) the Federal Home Loan Bank. 
B) the Federal Savings and Loan Insurance Corporation (FSLI
C) . 
C) the Federal Deposit Insurance Corporation (FDI
C) . 
D) savings Association Insurance Fund. 
A) the Federal Home Loan Bank. 
B) the Federal Savings and Loan Insurance Corporation (FSLI
C) . 
C) the Federal Deposit Insurance Corporation (FDI
C) . 
D) savings Association Insurance Fund.

Question 9

Which of the following is true?

Accepted Answer

A) Financial intermediation inherently involves risk and although risk can be reduced, it can never be eliminated. 
B) The layering of payments opens the possibility that a random default will set off a chain reaction of multiple defaults. 
C) A recession can cause a financial crisis but a financial crisis can never cause a recession. 
D) Both a and b are true. 
A) Financial intermediation inherently involves risk and although risk can be reduced, it can never be eliminated. 
B) The layering of payments opens the possibility that a random default will set off a chain reaction of multiple defaults. 
C) A recession can cause a financial crisis but a financial crisis can never cause a recession. 
D) Both a and b are true.

Question 10

Which of the following is true?

Accepted Answer

A) According to Minsky, in an extended recovery, the seeds of an eventual downturn are planted. 
B) A long term cycle of boom and bust has never happened in the U.S. economy. 
C) As spending units move from hedge to speculative to Ponzi units, their debt-income ratios fall. 
D) Minsky's financial instability hypothesis attempts to explain the short-term year to year gyrations in the economy. 
A) According to Minsky, in an extended recovery, the seeds of an eventual downturn are planted. 
B) A long term cycle of boom and bust has never happened in the U.S. economy. 
C) As spending units move from hedge to speculative to Ponzi units, their debt-income ratios fall. 
D) Minsky's financial instability hypothesis attempts to explain the short-term year to year gyrations in the economy.

Question 11

__________ are financial contracts the values of which are derived from the values of other underlying assets such as foreign exchange, bonds, equities, or commodities; examples include financial futures and options.

Accepted Answer

A) Standby letters of credit 
B) Junk bonds 
C) Unused credit lines 
D) Derivatives 
A) Standby letters of credit 
B) Junk bonds 
C) Unused credit lines 
D) Derivatives

Question 12

The risks included in financial intermediation

Accepted Answer

A) cause financial crisis to occur from time to time. 
B) include default, interest rate, liquidity, and exchange rate risks. 
C) combine with the layering of financial claims. 
D) All of the above are correct. 
A) cause financial crisis to occur from time to time. 
B) include default, interest rate, liquidity, and exchange rate risks. 
C) combine with the layering of financial claims. 
D) All of the above are correct.

Question 13

Risk is especially intensified in financial claims because

Accepted Answer

A) it is unwise to hedge interest rates. 
B) the Eurodollar market is highly volatile. 
C) payments from one party to another are usually dependent upon payments from third parties. 
D) of deposit insurance. 
A) it is unwise to hedge interest rates. 
B) the Eurodollar market is highly volatile. 
C) payments from one party to another are usually dependent upon payments from third parties. 
D) of deposit insurance.

Question 14

Activities such as standby lines of credit, overdraft protection, and unused credit card balances are examples of

Accepted Answer

A) off-balance-sheet activities. 
B) junk bonds. 
C) illegal activities for commercial banks. 
D) derivatives. 
A) off-balance-sheet activities. 
B) junk bonds. 
C) illegal activities for commercial banks. 
D) derivatives.

Question 15

Which of the following is false?

Accepted Answer

A) Financial crisis occur with regular predictability. 
B) Financial crisis have occurred in the past and will continue to occur in the future. 
C) A debt deflation is a real decrease in debt burdens cause by falling incomes and prices and debt burdens that are denominated in dollars. 
D) According to the financial instability hypothesis, in an extended period of recovery spending units forget the lessons of the past and take on more payments relative to their incomes. 
A) Financial crisis occur with regular predictability. 
B) Financial crisis have occurred in the past and will continue to occur in the future. 
C) A debt deflation is a real decrease in debt burdens cause by falling incomes and prices and debt burdens that are denominated in dollars. 
D) According to the financial instability hypothesis, in an extended period of recovery spending units forget the lessons of the past and take on more payments relative to their incomes.

Exam 11: Financial Instability and Strains on the Financial System

Which of the following is true?

A Ponzi spending unit is a spending unit

The FDIC presently insures deposits up to what amount?

In 1999 dollars, the estimated cost to taxpayers of the Savings and Loan bailout was

Which of the following statements about derivatives is false?

Which of the following is true with regards to the financial meltdown of 2008?

When interest rates rise, the value of long-term bonds

The insurance company that insured the deposits in S&Ls until 1989 when it was dissolved because of insolvency is

Which of the following is true?

Which of the following is true?

__________ are financial contracts the values of which are derived from the values of other underlying assets such as foreign exchange, bonds, equities, or commodities; examples include financial futures and options.

The risks included in financial intermediation

Risk is especially intensified in financial claims because

Activities such as standby lines of credit, overdraft protection, and unused credit card balances are examples of

Which of the following is false?

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

Filters