FINRA Series 16 – Quiz 21

A banking crisis can be characterized by which of the following occurring?

I. a run on banks that leads to a merger, takeover by the government 

II. closure of a financial institution 

III. a merger, takeover, government assistance 

IV. closure of a financial institution that spreads to other financial institutions. 

A study by Schularick and Taylor (forthcoming) showed which of the following is a strong predictor of a financial crisis? 

A study done by Reinhart and Rogoff (2011) shows which of the following lead to sovereign debt crises? 

I. An acceleration in economy-wide leverage in the form of external debt (debt borrowed from foreign lenders)  

II. A decrease in economy-wide leverage in the form of external debt (debt borrowed from foreign lenders)  

III. Domestic government debt precedes a bank crisis 

IV. International government debt precedes a bank crisis 

Which of the following were a similar pattern of the recent financial crisis where it was not unique compared to previous banking crises.  

I. Increased public and private debt 

II. Increased credit supply 

III. Increased housing prices preceding 

IV. Leading to the crises

As insurance, the investor would get their cash back plus interest, known as which of the following rate?  

The rise in haircuts prevented Lehman access to financing in the repo markets, which led to its…  

‘Lehman’s failure caused a run on a particular MMF, which contained commercial paper issued by Lehman’ 

Which of the following matches the above description? 

How many subgroups were these 153 actions divided into?  

Which of the following were included in the 5 subgroups of the 153 actions? 

I. Interest rate change 

II. Liquidity support 

III. Recapitalization 

IV. Liability guarantees, and asset purchases

Which of the following has the IMF used to determine the success of the actions taken?  

Which of the following are used to measure the impact of interest rate cuts?

I. Liquidity support
II. Economic stress index (ESI)
III. Credit default swaps (CDSs)
IV. Financial stress index (FSI)

Which of the following are the subgroups of Recapitalization?

I. Capital injection (common stock/preferred equity)
II. Capital injection (subordinated debt)
III. Enhancement of depositor protection
IV. Government lending to an individual institution

Which of the following are the subgroups of Liability Guarantees?

I. Enhancement of depositor protection
II. Debt guarantee (all liabilities)
III. Debt guarantee (new liabilities)
IV. Government lending to an individual institution

Which of the following statements best describe the factors linking the Great Depression to the most recent financial crisis?

Which of the following governmental policy responses to the financial crisis was most effective in the short term?

Which of the following are the subgroups of Assest purchases?

I. Asset purchases (individual assets, bank by bank)
II. Provisions of liquidity in context of bad asset purchases/removal
III. On-balance-sheet “ring-fencing” with toxic assets kept in the bank
IV. Asset guarantees

Economic Stress Index (ESI) is a composite of confidence measures from which of the following?

I. Businesses and consumers
II. Nonfinancial firm stock prices
III. Credit spreads
IV. Bank credit

The Financial Stress Index (FSI) is an index representing a composite of which of the following?

I. Stock prices
II. Spreads
III. Bank credit.
IV. Business and consumers

Which of the following did the IMF study use the Financial Stress Index (FSI) and an index of credit default swaps (CDSs) on banks to measure?

I. Nonfinancial firm stock prices
II. The impact on recapitalization
III. Liability guarantees
IV. Asset purchases

Which of the following was the effect of how liquidity support was measured?

I. Using the Financial Stress Index (FSI)
II. Using the Credit Default Swaps (CDSs)
III. Interbank spreads
IV. International bank spreads

Which of the following were measured using the Financial Stress Index (FSI) and an index of credit default swaps (CDSs) on banks?

I. Recapitalization
II. Liability guarantees
III. Asset purchases
IV. Interbank spreads

Liability guarantees and asset purchases generally showed weaker results regarding their short-term impact on the crisis. Both the FSI and CDS index were used to measure the effectiveness of these measures. Which of the following were the two notable exceptions?

I. The success of the UK’s asset protection scheme of 2009
II. The failure of the UK’s asset protection scheme of 2009
III. The purchase of USB assets by the Swiss government
IV. The purchase of USB assets by the German government

Syndicated loans are the main source of loans made to large corporations and is the catch-all phrase for loans made by traditional regulated banks and other entities, such as:

I. Investment banks
II. Mutual funds
III. Insurance companies
IV. Pension funds, hedge funds, and other institutional investors

Which of the following task are the role of risk management involves performing?

I. Assess all risks faced by the firm
II. Communicate these risks to risk-taking decision makers
III. Monitor risks
IV. Manage these risks

A large loss does not necessarily mean that risk management has failed. What happens when risk managers understood and prepared for the possibility of loss?

Which of the following where risk management can fail if the firm does not do?

I. Measure risks correctly
II. Recognize some risk
III. Communicate risks to top management
IV. Monitor and manage risks

‘Occur when risk managers do not understand the distribution of returns of a single risky position or the relationships of the distributions among different positions’

Which of the following matches the above description?

Failing to take known and unknown risks into account can take which of the following three forms?

I. Ignore a risk that is known
II. Failure to incorporate a risk into risk models
III. Not finding all risks
IV. Failure to attend risk assessment course

What happens if data were not obtained properly to measure the risk adequately?

What is the purpose of risk management?