you read in the financial press that the recent flight to quality is reversing. What will happen in the bond market?

a. Yields of US Treasury bonds will decrease relative to the yields of corporate bonds.

b. Prices of US Treasury bonds will decrease relative to the prices of corporate bonds.

c. Yields of US Treasury bonds will increase relative to the yields of corporate bonds.

d. Prices of US Treasury bonds will increase relative to the prices of corporate bonds.

The financial and economic system in Canada functioned very differently from financial systems in other Western countries. In what way was Canada’s experience different? 

a. Canada entered an economic depression, whereas other countries suffered only a recession.

b. Canada suffered from very high rates of inflation, whereas other countries did not. 

c. Canada avoided much of the global financial crisis mainly because of well-run banks. 

d. Canada’s financial system collapsed well before the crisis hit other countries.

Critics of the Bank of Japan argue that it played a role in the global financial crisis. What do these critics argue?

a. The Bank of Japan raised interest rates too quickly as the crisis was beginning. 

b. The Bank of Japan did not expand its as much as the Federal Reserve did in response to the crisis.

c. The Bank of Japan should have cut taxes to stimulate spending in Japan. 

d. The Bank of Japan purchased far too many bonds at the beginning of the crisis

Sunita is a loan officer at a bank. She is considering making a loan to a local business, but she is worried about the “conditions” variable of the risk. What is Sunita worried about?

a. The people who are borrowing the money may not have the legal capacity to borrow in the name of the firm.

b. The firm may not have sufficient cash flow to make regular payments as required by the loan.

c. The market in which the firm is selling may experience a downturn in the near future, making it difficult for the borrower to repay the loan.

d. Laws might change and negatively affect the ability of the borrower to repay the loan.

Which of the following correctly describes the role of the bond-rating agencies in the subprime mortgage asset bubble?

a. The bond-rating agencies warned early on that subprime mortgages were going to have a high level of default.

b. The bond-rating agencies gave high ratings to assets backed by subprime mortgages, thus encouraging the growth of the asset bubble.

c. The bond-rating agencies informed government regulators, but not the general public, of the high level of default risk of subprime mortgages.

d. All of these.

Scott suffers from what Simon Johnson calls “intellectual capture.” What does that mean?

a. Scott believes that only highly educated people should manage financial institutions.

b. Anything that is beneficial to the financial sector Scott sees as benefiting society as a whole.

c. Scott considers the compensation paid to financial institution executives as being excessive because these executives are not the most highly educated members of society.

d. In Scott’s view bank regulators are the most highly trained professionals in financial markets.

You read in the business press that real, risk-adjusted interest rates in Switzerland have decreased relative to interest rates in the United Kingdom. What will happen in the and thus in the goods market?

a. The Swiss franc will appreciate relative to the pound and the British will have to pay more pounds to buy Swiss watches.

b. The British pound will depreciate and thus British tourists will have to pay more pounds for their hotel stays in Switzerland.

c. Both a and b are correct.

d. None of the above.

In subprime home mortgages the term subprime refers to:

a. The fact that the interest rates on these mortgages were below the prime rate.

b. The idea that these mortgages were offered to young borrowers who had their prime earning years ahead of them.

c. The fact that the borrowers had a credit history that was not as good as a typical or prime borrower.

d. The idea that these borrowers had a much higher savings rate than a typical borrower.

During what time periods did the size of investment banks change?

a. In the 1920s, as US consumer spending increased, investment banks grew in size to provide credit to American consumers.

b. Shortly after World War II, the size of investment banks grew thanks to the postwar economic boom. 

c. During the inflationary times of the 1970s, investment banks grew as investors sought investments that kept pace with inflation.

d. Deregulation in the 1980s and changes in corporate structures in the 1990s resulted in growth in the size of investment banks.

Your friend Cynthia works at an investment bank and tells you she is going on a “roadshow.” What will Cynthia be doing?

a. Going to the government and asking for a taxpayer bailout of the investment bank.

b. Lobbying the government to reduce the amount of regulations over the investment bank.

c. Helping the investment bank sell shares of its mutual fund to the general public.

d. Assisting either a or government in explaining to potential investors or analysts who is issuing a security what the security promises.