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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. 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
2. When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in
3. A bank panic can lead to a severe contraction in economic activity due to
4. A feature of debt markets in emerging-market countries is that debt contracts are typically________.
5. 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.
6. Although the subprime mortgage market problem began in the United States, the first indication of the seriousness of the crisis began in
7. Financial crises generally develop along two basic paths:
8. The largest bank failure in U.S. history was ________ which went into receivership by the FDIC on September 25, 2008.
9. Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan. This created a
10. In emerging economies, government fiscal imbalances may cause fears of
11. Agency problems in the subprime mortgage market included all of the following except
12. If debt contracts are denominated in foreign currency, then an unanticipated decline in the value of the domestic currency results in
13. A substantial decrease in the aggregate price level that reduces firmsʹ net worth may stall a recovery from a recession. This process is called
14. A possible sequence for the three stages of a financial crisis in the U.S. might be ________ leads to ________ leads to ________.
15. The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________.
16. If uncertainty about banksʹ health causes depositors to begin to withdraw their funds from banks, the country experiences a(n)
17. 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
18. 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.
19. 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
20. In a bank panic, the source of contagion is the
21. Many 19th century U.S. financial crises were started by
22. Factors that lead to worsening conditions in financial markets include:
23. Factors that led to worsening conditions in Mexicoʹs 1994-1995 financial markets include
24. A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend.
25. In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency

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