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20 multiple choice and true or false questions




Question;1.The margin calls on BSAM funds did not have effects beyond these funds. There was nocontagion effect of the margin calls. This was because BSAM was able to liquidate assets at bidprices close to the value at which the assets were carried.TrueFalse2. 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 pointsC.121 basis pointsD.-343 basis points3. 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 coolatarlto meet the margin call. Assets = $100A. $0.25B.$0.34C.$0.26D.$0.304. A margin call requires the borrower to increase its equity to support its debt.TrueFalse5. 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.TrueFalse6. During periods of financial distress investors tend to sell risky assets and buy safe assets. Thisflow 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 thecost of borrowing for the private sector7. If numerous large financial institutions receive simultaneous margin calls when the value oftheir 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 becauseBernanke believed that bank executives had ripped off society. In addtion Bernanke feared thelong term affects of moral hazard.TRUEFALSE9. The decline in home values since 2007 led to serious financial distress in the household sectorand 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 banksD. 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 andone treasury bills continued to steadily widen until May of 2009 when it stabilized.TRUEFALSE11. The difference between the Fed Funds rate and the three month treasury narrowed asinvestors began fearing that large banking institutions were likely to fail in the second and thirdquarters of 2008. The spread widened in the fourth quarter of 2008.TRUEFALSE12. The AAA rated class of a CDO squared has always has the same credit risk as a bond issuedby a AAA rated corporation. This is because ratings capture all credit risk. This is the point ofratings. This was proven during the financial crisis.TRUEFALSE13. Wachovia and Washington Mutual collapsed because depositors did not have confidence inthe FDIC and bank managers had insufficient reserves to meet depositor withdrawals.TRUEFALSE14.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.TRUEFALSE15. On August 17th/2007 the spread between the CP rate and the Fed Funds rate was over 130basis points and by 3/21/2008 the spared had increased to over 150 basis points. By 9/26/2008this same spread was over 300 bpTRUEFALSE16. Super-senior tranches of CDOs are so safe that only fools would have shorted them. Afterall they were senior to AAA rated tranchesTRUEFALSE17. Alan Blinder places part of the blame for the financial crisis on Moodys but praisesStandard and Poors. He argues that Standard and Poors never gave AAA ratings to CDOs thatwere backed by subprime MBS. Blinder puts the blame on the incompetence of MoodysanalystsTRUEFALSE18. Due to margin calls in the year 2007 BSAM had to issue more debt to raise the funds to comeup with the cash. This issue of debt increased the leverage of the funds and depressed the valueof the assets under management.TRUEFALSE19. According to Alan Blinder the compensation schemes at investment banks linked the wealthof bankers to the risks of the assets the bank securitized. This is why the crisis of 2007-2009never reached the same proportions as the crisis of the 1930s. In addition the partnershipstructure of investment banks during the 1920s increased the principle agent problem.TRUEFALSE20. In March of 2007 the difference between the interest rate on the Fed Funds rate and the yieldon the one month Treasury bill was less than in February of 2006:TRUEFALSE


Paper#53077 | Written in 18-Jul-2015

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