QUESTION 41 In 2007, a debt to capital ratio of 40 to 1 led to the collapse of a

Question

QUESTION 41

In 2007, a debt to capital ratio of 40 to 1 led to the collapse of all five investment banks.

True

False

2 points   

QUESTION 42

As a result of the findings of Brooksley Born, Congress passed the Commodity Futures Trading Act of 2000 with the purpose of

giving Ms. Born a free hand in dealing with the derivatives market.

strengthening the authority of the Commodity Futures Trading Commission so it could deal effectively with the derivatives market.

stripping the Commodity Futures Trading Commission of all responsibility over the derivatives market.

making sure that the derivatives market was totally unregulated and left to function with no federal oversight.

Both c and d are answers.

2 points   

QUESTION 43

A hedge fund is an investment fund opened to a limited range of investors, professionals and wealthy people.

True

False

2 points   

QUESTION 44

Tthe Glass-Steagall Act of 1933

separated commercial banks from investment banks.

allowed investment banks a free hand in their financial dealings.

regulated commercial banks.

All of the above.

2 points   

QUESTION 45

A derivative is so called because its value is derived from the outcome of some future event.

True

False

2 points   

QUESTION 46

When a bank sells mortgages to Freddie Mac, the bank in participatingin the secondary market.

True

False

2 points   

QUESTION 47

A key factor in the mortgage collapse in 2007 - 2008 was the abundance of adjustable rate mortgages.

True

False

2 points   

QUESTION 48

To be upside down on a mortgage loan means you

owe more on your mortgage than what your house is worth on the market.

owe more than 50% of what your house is worth on the market.

are paying on a variable rate mortgage.

are close to paying off your mortgage.

2 points   

QUESTION 49

Before 1999, commercial banks were regulated and investment banks were not.

True

False

2 points   

QUESTION 50

A hedge fund is so called because it

specializes in ultra-safe investment vehicles.

attempts to offset exposure to price fluctuations in various markets.

buys an equal amount of stocks, bonds, and certificates of deposit (CDs).

only buys U.S. government securities.

a.

giving Ms. Born a free hand in dealing with the derivatives market.

b.

strengthening the authority of the Commodity Futures Trading Commission so it could deal effectively with the derivatives market.

c.

stripping the Commodity Futures Trading Commission of all responsibility over the derivatives market.

d.

making sure that the derivatives market was totally unregulated and left to function with no federal oversight.

e.

Both c and d are answers.

Explanation / Answer

Q 41: True: A debt to capital ratio of 40 to 1 means that an investment bank could lend out $40 with only $1 in reserve against the $40. This excessive leverage during the economy slow down lead to losses
Q 42: Option c: The Commodity Futures Modernization Act of 2000 stripped any government from supervising the derivatives market
Q. 43. Option a: It attempts to establish a position on one market to offset price fluctuations in another market.
Q. 44. Option a: This act prevented investing depositor’s money in highly risky investments by commercial banks.
Q.45.True:
Q. 46.True:
Q. 47. True: During 2007-2008 the mortgage lending companies eased to obtain a mortgage in the early years for which many people showed interests to take out mortgages. But the terms worked against them soon after as the interest rate increased.
Q. 48. Option a
Q. 49. True
Q. 50. Option b. It acts as a successful investing to avoid losses

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