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Money, Banking, and Financial Markets Practice Test: Financial Crises and the Subprime Meltdown
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A financial crisis occurs when assets or financial instruments significantly decrease in value, making it hard for businesses to meet their financial obligations. Financial crises are often caused by a period of economic boom and overextension of credit to borrowers.  The subprime meltdown, or subprime mortgage crisis, was a multinational financial crisis that occurred between 2007 and 2010, and was the main trigger of the global financial crisis of 2008. The crisis began after the housing market collapsed, and many borrowers were unable to pay back their loans. This led to a severe economic... Show more
Money, Banking, and Financial Markets Practice Test: Financial Crises and the Subprime Meltdown
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25 Questions

1. At the time of the South Korean financial crisis, the merchant banks were
2. An unanticipated decline in the price level increases the burden of debt on borrowing firms but does not raise the real value of borrowing firmsʹ assets. The result is
3. The key factor leading to the financial crises in Mexico and the East Asian countries was
4. Debt deflation occurs when
5. ________ is a process of bundling together smaller loans (like mortgages) into standard debt securities.
6. Many 19th century U.S. financial crises were started by
7. Severe fiscal imbalances can directly trigger a currency crisis since
8. The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.
9. A possible sequence for the three stages of a financial crisis in the U.S. might be ________ leads to ________ leads to ________.
10. In emerging market countries, the deterioration in bankʹs balance sheets has more ________ effects on lending and economic activity than in advanced countries.
11. A ________ pays out cash flows from subprime mortgage-backed securities in different tranches, with the highest-rated tranch paying out first, while lower ones paid out less if there were losses on the mortgage-backed securities.
12. Agency problems in the subprime mortgage market included all of the following except
13. In emerging economies, government fiscal imbalances may cause fears of
14. Factors likely to cause a financial crisis in emerging market countries include
15. The government bailout of troubled financial institutions occurred in the U.S. and many other countries. Which country saw their banking system collapse requiring the government to take over its three largest banks?
16. Factors that led to worsening financial market conditions in East Asia in 1997-1998 include
17. The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as
18. A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend.
19. A feature of debt markets in emerging-market countries is that debt contracts are typically________.
20. When financial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a
21. Although the subprime mortgage market problem began in the United States, the first indication of the seriousness of the crisis began in
22. A substantial decrease in the aggregate price level that reduces firmsʹ net worth may stall a recovery from a recession. This process is called
23. The growth of the subprime mortgage market led to
24. A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a
25. If uncertainty about banksʹ health causes depositors to begin to withdraw their funds from banks, the country experiences a(n)

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