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20 multiple choice and true or false questions




1.The margin calls on BSAM funds did not have effects beyond these funds. There was no;contagion effect of the margin calls. This was because BSAM was able to liquidate assets at bid;prices close to the value at which the assets were carried.;True;False;2. In March of 2008 the spread between the Fed Funds rate and the one month Treasury bill was;A.186 basis points.;B.111 basis points;C.121 basis points;D.-343 basis points;3. The maximum debt equity ratio for fund HEDGE is 30. Currently the debt equity ratio is 40.;The fund has recievd a margin call. The managers must deposit at least $x of addtional coolatarl;to meet the margin call. Assets = $100;A. $0.25;B.$0.34;C.$0.26;D.$0.30;4. A margin call requires the borrower to increase its equity to support its debt.;True;False;5. The maximum debt equity ratio for fund HEDGE is 30. Currently the debt equity ratio is 20.;Assets = $100.If asset values fall by 10% the fund will face a margin call.;True;False;6. During periods of financial distress investors tend to sell risky assets and buy safe assets. This;flow of funds from risky assets to safer assets;A.Reduces the cost of borrowing for businesses and for the Federal Government.;B. Increases the cost of borrowing for businesses and for Federal Government.;C.Increases the cost of borrowing for the Federal Government.;D.Reduces the cost of borrowing for the Federal Government and increases the;cost of borrowing for the private sector;7. If numerous large financial institutions receive simultaneous margin calls when the value of;their MBS assets are rapidly declining, the margin calls will;A. Accelerate the decline in MBS asset values.;B. Increase the supply of fed funds.;C. Increase the demand for the MBS assets to satisfy the margin calls.;D. Cause an inflow of funds to the stock market.;8. In 2008 the Federal Reserve refused to act as lender of last resort during the last crisis because;Bernanke believed that bank executives had ripped off society. In addtion Bernanke feared the;long term affects of moral hazard.;TRUE;FALSE;9. The decline in home values since 2007 led to serious financial distress in the household sector;and the banking sector because;A. The decline lowered the demand for housing.;B. The decline led to a decrease in the debt/equity ratio of both households and banks.;C. The decline led to an increase in the debt/equity ratio of both households and banks;D. The decline increased the value of mortgage-backed securities and corporate bonds.;10. Once Bear Stearns collapsed the spread between the yield on 1 month commercial paper and;one treasury bills continued to steadily widen until May of 2009 when it stabilized.;TRUE;FALSE;11. The difference between the Fed Funds rate and the three month treasury narrowed as;investors began fearing that large banking institutions were likely to fail in the second and third;quarters of 2008. The spread widened in the fourth quarter of 2008.;TRUE;FALSE;12. The AAA rated class of a CDO squared has always has the same credit risk as a bond issued;by a AAA rated corporation. This is because ratings capture all credit risk. This is the point of;ratings. This was proven during the financial crisis.;TRUE;FALSE;13. Wachovia and Washington Mutual collapsed because depositors did not have confidence in;the FDIC and bank managers had insufficient reserves to meet depositor withdrawals.;TRUE;FALSE;14.;The maximum debt equity ratio for fund HEDGE is 30. Currently the debt equity ratio is 10.;If asset values fall by 5% the fund will face a margin call.;TRUE;FALSE;15. On August 17th/2007 the spread between the CP rate and the Fed Funds rate was over 130;basis points and by 3/21/2008 the spared had increased to over 150 basis points. By 9/26/2008;this same spread was over 300 bp;TRUE;FALSE;16. Super-senior tranches of CDOs are so safe that only fools would have shorted them. After;all they were senior to AAA rated tranches;TRUE;FALSE;17. Alan Blinder places part of the blame for the financial crisis on Moodys but praises;Standard and Poors. He argues that Standard and Poors never gave AAA ratings to CDOs that;were backed by subprime MBS. Blinder puts the blame on the incompetence of Moodys;analysts;TRUE;FALSE;18. Due to margin calls in the year 2007 BSAM had to issue more debt to raise the funds to come;up with the cash. This issue of debt increased the leverage of the funds and depressed the value;of the assets under management.;TRUE;FALSE;19. According to Alan Blinder the compensation schemes at investment banks linked the wealth;of bankers to the risks of the assets the bank securitized. This is why the crisis of 2007-2009;never reached the same proportions as the crisis of the 1930s. In addition the partnership;structure of investment banks during the 1920s increased the principle agent problem.;TRUE;FALSE;20. In March of 2007 the difference between the interest rate on the Fed Funds rate and the yield;on the one month Treasury bill was less than in February of 2006;TRUE;FALSE


Paper#20087 | Written in 18-Jul-2015

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