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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. The two key factors that trigger speculative attacks on emerging market currencies are
2. Credit market problems of adverse selection and moral hazard increased as a result of all of the following except
3. 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
4. When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called
5. Financial crises generally develop along two basic paths:
6. 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?
7. A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system
8. If debt contracts are denominated in foreign currency, then an unanticipated decline in the value of the domestic currency results in
9. Like a CDO, a structured investment vehicle pays off cash flows from pools of assets, however, rather than long-term debt the structured investment vehicle backs
10. The Economic Recovery Act of 2008 had several provisions to promote recovery from the subprime financial crisis. These provisions included all of the following except
11. A bank panic can lead to a severe contraction in economic activity due to
12. Severe fiscal imbalances can directly trigger a currency crisis since
13. Factors that led to worsening financial market conditions in East Asia in 1997-1998 include
14. Agency problems in the subprime mortgage market included all of the following except
15. 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.
16. The growth of the subprime mortgage market led to
17. At the time of the South Korean financial crisis, the merchant banks were
18. A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend.
19. Factors that led to worsening conditions in Mexicoʹs 1994-1995 financial markets include
20. Factors that led to worsening conditions in Mexicoʹs 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include
21. Many 19th century U.S. financial crises were started by
22. 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 Great Depression.
23. In emerging market countries, the deterioration in bankʹs balance sheets has more ________ effects on lending and economic activity than in advanced countries.
24. The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by
25. A serious consequence of a financial crisis is

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