Banks lost money during the mortgage default crisis because: Multiple Choice of defaulted loans to investors in mortgage-backed securities. they held mortgage-backed securities they had purchased from investment firms. homebuyers defaulted on mortgages held by the banks. of all of these reasons.

Banks lost money during the mortgage default crisis because: Multiple Choice of defaulted loans to investors in mortgage-backed securities. they held mortgage-backed securities they had purchased from investment firms. homebuyers defaulted on mortgages held by the banks. of all of these reasons.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following was NOT a direct and major consequence of the 2007-2009 U.S. Subprime Financial Crisis? a. Small consumer and household savers lost all their money they had in savings accounts due to the failure of many smaller FDIC member banks b. Many people lost their homes when they could no longer make their payments after their subprime mortgage rates reset to a much higher rate after two years c. Lehman suffered a major financial collapse and ultimately was dissolved after many of its remaining parts were purchased by Barclays and Nomura, among others d. The U.S. stock markets dropped dramatically as the credit fueled economy of the mid-2000s started to suffer after the credit bubble began to burst.
Discuss how the subprime mortgage crisis of 2007 was based upon the flawed financial model that house prices only increase.
How did mark-to-market (MTM) accounting factor into the credit crisis? CDS's were undervalued MBS's were overvalued subprime loans were undervalued CDS's were overvalued MBS's were undervalued
Interest rates charged by pawnshops, title loan companies, and payday loan companies often far exceed the cost of borrowing on a credit card. True False
The "mark to market" rule (a) Created an unrealistic picture of the financial health of some banks. (b) Required banks to recognize in their balance sheet decrease in value of assets as their price declined in the market, instead of waiting until the asset was sold. (c) Caused the net worth of some banks to decline significantly and making it impossible for the banks to make loans. (d) All the above. (e) Only (b) and (c) are true.
According to the article, why are interest rates on credit cards higher than interest rates on cars or homes? Choose one or more: A. People who use credit cards take more financial risks than people who buy cars or homes. ⒸB. Credit card issuers are londing money that is unsecured. C. Credit card debts are among the first written off when people file for bankruptcy. O D. Credit card debt typically is for a shorter time period than a loan for a car or home.
In the run-up to the 2007 – 2009 financial crises, all of these key trends undermined the health of the mortgage (and other) securitization markets except: Group of answer choices D. Banks failing to distribute securitized risk A. Risk-based pricing C. Subprime credit wrapped into complex and overvalued securities B. Subprime loans
Payday loans are one of the most insidious business practices, and their customers seem to end up with a payday ball and chain around their neck that never seems to go away. This is because the interest and fees associated with these loans are so high that many people get trapped into taking one after the other over and over again. Rarely do payday loans end up being the short-term solution they claim. On the business front, there are working capital loans. Do you think that these are a good idea and a valid solution to help manage working capital, or do you think that these are the business equivalent of payday loans?
1) If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of A) adverse credit risk. B) adverse selection. C) moral hazard. D) lemon lenders.
Analysts and theorists have debated over the different factors that caused the subprime mortgage meltdown. According to your understanding of the crisis, which of the following factors led to the financial crisis? Check all that apply. A. Real estate appraisers and rating agencies were lax B. Credit default swaps clamied to insure CDOs C. The Fed kept interest rates low to encourage home ownership D. investors were fully aware of the risks involved, yet still settled with low returns.
Financial assets such as mortgages, credit cardreceivables, and auto loan receivables are oftenbundled up, placed in a bank trust department,and then used as collateral for publicly tradedbonds. Bond prices typically rise when interestrates decline, but bonds backed by mortgagesfrequently fall when rates decline. Why might thishappen?

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