Deck 3: Bubble

Question 1

A financial bubble happens only because of irrational behaviors of investors, such as herding activities or outright foolishness.

Answer 1

False

Question 2

A speculative bubble is usually caused by which of the following? Select all that apply:

A)Exaggerated expectations of future growth.
B)Price appreciation.
C)An increase in asset values.
D)Higher trading volumes.
E)All of the above

Answer 2

All of the above

Question 3

The main reason that led to the collapse of the oldest merchant bank in England, Barings Bank, in 1995 after 233 years of existence was...

A)A bank run.
B)A change in the board of directors, which caused a confidence crisis among the public.
C)An unauthorized speculation by one employee on future contracts.
D)The Kobe earthquake in Japan, which led to a financial crisis in Asia and hence, severely affected the bank's activities.

Answer 3

An unauthorized speculation by one employee on future contracts.

Question 4

Which of the following events fueled the Asian Financial crisis in 1997?

A)The war between Indonesia and West Timor.
B)The Thai government decided to float its currency, the Baht.
C)Brunei stopped selling its oil to neighboring countries.
D)A political uproar in the Philippines.

Question 5

The Dutch tulip bulb crisis (AKA "Tulipmania") in February 1637, happened as the contract prices for Tulip bulbs soared from November 1636 to January 1637 and suddenly collapsed in February 1637. What does the case illustrate?

A)Frenzy optimism about the growth in Tulip bulb prices.
B)A speculative bubble.
C)Irrational investing.
D)A confidence crisis.