Question 1

Assume you purchase an asset that cost 6000 and borrow 40 % of the cost from a wealthy relative.After a year the asset is worth 7800 .What is your rate of return on your investment?

Accepted Answer

The cost of the asset is $6000, and 40% of this cost, which is $2400, is borrowed. Therefore, the personal investment is $6000 - $2400 = $3600. After a year, the asset's value increases to $7800. The profit is $7800 - $6000 = $1800. The rate of return on the personal investment is ($1800 / $3600) * 100% = 50%.

Question 2

By the 2000s,an important market change occurred when U.S.investment banks became significant participants in the secondary market for

Accepted Answer

By the 2000s, U.S. investment banks started to become major players in the secondary market for mortgages. This led to the creation of mortgage-backed securities, which helped to fuel the housing bubble and ultimately led to the 2008 financial crisis.

Question 3

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,________,to sell bonds to investors and use the funds to purchase mortgages from banks.

Accepted Answer

The government sponsored enterprises referred to in the question are Fannie Mae and Freddie Mac. These entities were established by Congress to promote liquidity in the housing market by purchasing mortgages from banks and selling them to investors as bonds. This helped to reassure investors who were previously unwilling to buy mortgages in the secondary market.

Question 4

Despite saving Lehman Brothers from failing,the U.S.Federal Reserve and the U.S.Treasury Department decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

Accepted Answer

The statement is incorrect. It was Bear Stearns that was bailed out by the Federal Reserve and JPMorgan Chase in March 2008, while Lehman Brothers was allowed to fail in September 2008.

Question 5

By the 2000s,U.S.investment banks had become significant participants in the secondary market for mortgages.

Accepted Answer

This is true. Investment banks such as Lehman Brothers, Goldman Sachs, and Bear Stearns were major players in the secondary market for mortgages, packaging and selling mortgage-backed securities to investors.

Question 6

If the amount you owe on your house is less than the price of the house,you have

Accepted Answer

When the amount you owe on your house is less than the price of the house, it means you have positive equity in your house. This is because the market value of the house exceeds the outstanding mortgage balance. Positive equity is desirable as it can be used to secure a loan, refinance, or eventually sell the property for a profit.

Question 7

In March 2008,the U.S.Federal Reserve announced that primary dealers would be eligible to receive discount loans.

Accepted Answer

This statement is true. In March 2008, the U.S. Federal Reserve announced that primary dealers would be eligible to receive discount loans in order to improve market liquidity and stabilize the financial system during the subprime mortgage crisis.

Question 8

In the following table,fill in the columns for your return on investment if the price of your house increases or decreases by 40 percent,based on the down payments specified in the first column.
Return on Your Investment From

Accepted Answer

The answer of In the following table,fill in the columns...

Question 9

Firms that participate in regular open market transactions with ________ are called primary dealers.

Accepted Answer

Primary dealers are financial institutions that have an ongoing relationship with the Federal Reserve, particularly in buying and selling government securities during open market operations.

Question 10

The smaller the fraction of an investment financed by borrowing,

Accepted Answer

When the fraction of an investment financed by borrowing is smaller, the potential return and potential loss on that investment are also smaller. This is because borrowing involves interest payments and the need to repay the loan, which can eat into any returns on the investment. Additionally, if the investment loses value, the borrower is still responsible for repaying the loan, which can result in larger losses if a larger fraction of the investment was financed by borrowing. Therefore, a smaller fraction of the investment financed by borrowing results in smaller potential returns and losses.

Question 11

Although the U.S.Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the U.S.Federal Reserve made primary dealers eligible for discount loans as well.

Accepted Answer

Traditionally, the U.S. Federal Reserve's discount window was primarily available to commercial banks to borrow funds. During the financial crisis of 2008, the Federal Reserve expanded access to include primary dealers, which are banks and financial institutions that deal directly with the U.S. Treasury for the sale of government securities, to ensure liquidity and stabilize the financial system.

Question 12

The Bank of Canada,the Department of Finance,and the Office of the Superintendent of Financial Institutions are all alarmed by the high household debt to after-tax income ratio of Canadians and the overheated housing marked caused by

Accepted Answer

The low interest rates kept by the government have caused a surge in borrowing and spending, which has led to high household debt and an overheated housing market. The other options do not accurately reflect the causes of the issue.

Question 13

By the height of the U.S.housing bubble in 2005 and early 2006,lenders in the United States had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to sub-prime borrowers ________ and "Alt-A" borrowers ________.

Accepted Answer

The passage states that lenders had loosened the standards for obtaining a mortgage loan and many mortgages were granted to sub-prime borrowers with flawed credit histories and "Alt-A" borrowers who did not document their incomes. This fits with choice A as the best answer.

Question 14

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the U.S.Federal Reserve will loan up to $200 billion of treasury securities in exchange for

Accepted Answer

The Term Securities Lending Facility was created to improve liquidity in the securities market by allowing financial institutions to exchange mortgage-backed securities for U.S. Treasury securities, thus providing them with higher quality collateral.

Question 15

A financial asset is considered ________ if it can be sold in a secondary market.

Accepted Answer

A financial asset that can be sold in a secondary market is considered a security. Securities include stocks, bonds, and other financial instruments that can be bought and sold on exchanges or over-the-counter markets.

Question 16

What is a mortgage? What were the important developments in the mortgage market during the years after 1970 in the United States?

Accepted Answer

The answer of What is a mortgage? What were the...

Question 17

Prior to 1970,mortgages were ________ resold in the secondary market.

Accepted Answer

Prior to 1970, mortgages were rarely resold in the secondary market. The government-sponsored enterprises, Fannie Mae and Freddie Mac, did not begin to purchase mortgages for the secondary market until the late 1960s. Therefore, the secondary mortgage market was not as established or prevalent as it is today.

Question 18

The U.S.Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the U.S.Federal Reserve responded?

Accepted Answer

The U.S. Federal Reserve implemented a program where it lent U.S. Treasury securities to investment banks in exchange for mortgage-backed securities to provide liquidity to the financial markets during the 2008 crisis.

Question 19

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the U.S.Treasury Department's move to have the federal government take control of

Accepted Answer

The U.S. Treasury Department took control of Fannie Mae and Freddie Mac, which were government-sponsored enterprises responsible for providing liquidity to the mortgage market. This move was aimed at stabilizing the housing market and preventing the collapse of the mortgage industry.

Question 20

In October 2008,U.S.Congress passed the Troubled Asset Relief Program (TARP),under which the U.S.Treasury Department provided ________ to banks in exchange for ________.

Accepted Answer

TARP provided funds to banks in exchange for stock. This allowed the U.S. government to become a shareholder in many of the country's largest banks and helped to stabilize the financial system during the 2008 financial crisis.

Quiz 11: Monetary Policy

Assume you purchase an asset that cost 6000 and borrow 40 % of the cost from a wealthy relative.After a year the asset is worth 7800 .What is your rate of return on your investment?

By the 2000s,an important market change occurred when U.S.investment banks became significant participants in the secondary market for

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,________,to sell bonds to investors and use the funds to purchase mortgages from banks.

Despite saving Lehman Brothers from failing,the U.S.Federal Reserve and the U.S.Treasury Department decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

By the 2000s,U.S.investment banks had become significant participants in the secondary market for mortgages.

If the amount you owe on your house is less than the price of the house,you have

In March 2008,the U.S.Federal Reserve announced that primary dealers would be eligible to receive discount loans.

In the following table,fill in the columns for your return on investment if the price of your house increases or decreases by 40 percent,based on the down payments specified in the first column. Return on Your Investment From

Firms that participate in regular open market transactions with ________ are called primary dealers.

The smaller the fraction of an investment financed by borrowing,

Although the U.S.Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the U.S.Federal Reserve made primary dealers eligible for discount loans as well.

The Bank of Canada,the Department of Finance,and the Office of the Superintendent of Financial Institutions are all alarmed by the high household debt to after-tax income ratio of Canadians and the overheated housing marked caused by

By the height of the U.S.housing bubble in 2005 and early 2006,lenders in the United States had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to sub-prime borrowers and "Alt-A" borrowers .

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the U.S.Federal Reserve will loan up to $200 billion of treasury securities in exchange for

A financial asset is considered ________ if it can be sold in a secondary market.

What is a mortgage? What were the important developments in the mortgage market during the years after 1970 in the United States?

Prior to 1970,mortgages were ________ resold in the secondary market.

The U.S.Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the U.S.Federal Reserve responded?

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the U.S.Treasury Department's move to have the federal government take control of

In October 2008,U.S.Congress passed the Troubled Asset Relief Program (TARP) ,under which the U.S.Treasury Department provided to banks in exchange for .

Quiz 11: Monetary Policy

Assume you purchase an asset that cost 6000 and borrow 40 % of the cost from a wealthy relative.After a year the asset is worth 7800 .What is your rate of return on your investment?

By the 2000s,an important market change occurred when U.S.investment banks became significant participants in the secondary market for

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,________,to sell bonds to investors and use the funds to purchase mortgages from banks.

Despite saving Lehman Brothers from failing,the U.S.Federal Reserve and the U.S.Treasury Department decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

By the 2000s,U.S.investment banks had become significant participants in the secondary market for mortgages.

If the amount you owe on your house is less than the price of the house,you have

In March 2008,the U.S.Federal Reserve announced that primary dealers would be eligible to receive discount loans.

In the following table,fill in the columns for your return on investment if the price of your house increases or decreases by 40 percent,based on the down payments specified in the first column. Return on Your Investment From

Firms that participate in regular open market transactions with ________ are called primary dealers.

The smaller the fraction of an investment financed by borrowing,

Although the U.S.Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the U.S.Federal Reserve made primary dealers eligible for discount loans as well.

The Bank of Canada,the Department of Finance,and the Office of the Superintendent of Financial Institutions are all alarmed by the high household debt to after-tax income ratio of Canadians and the overheated housing marked caused by

By the height of the U.S.housing bubble in 2005 and early 2006,lenders in the United States had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to sub-prime borrowers ________ and "Alt-A" borrowers ________.

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the U.S.Federal Reserve will loan up to $200 billion of treasury securities in exchange for

A financial asset is considered ________ if it can be sold in a secondary market.

What is a mortgage? What were the important developments in the mortgage market during the years after 1970 in the United States?

Prior to 1970,mortgages were ________ resold in the secondary market.

The U.S.Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the U.S.Federal Reserve responded?

In 2008,the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the U.S.Treasury Department's move to have the federal government take control of

In October 2008,U.S.Congress passed the Troubled Asset Relief Program (TARP) ,under which the U.S.Treasury Department provided ________ to banks in exchange for ________.

By the height of the U.S.housing bubble in 2005 and early 2006,lenders in the United States had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to sub-prime borrowers and "Alt-A" borrowers .

In October 2008,U.S.Congress passed the Troubled Asset Relief Program (TARP) ,under which the U.S.Treasury Department provided to banks in exchange for .