Quiz 5 ECON 3229

The FDIC was created in

1934

Which investment bank avoided bankruptcy by being purchased by JP Morgan Chase in March 2008?

Bear Stearns

Which of the following rules affected hedge funds as a result of the Dodd-Frank Act of 2010?

Large hedge funds must register with the SEC.

When investment banks buy or sell securities on their own account, it's called

Proprietary trading

Which of the following is NOT a form of a short-term loan in the shadow banking system?

bank deposits

When prices of new houses rise significantly faster than rent prices, this is evidence of a

bubble

Which investment caused the Reserve Primary Fund to incur heavy losses?

commercial paper issued by Lehman Brothers

Underwriting involves

guaranteeing a price for new capital to the issuing firm

All of the following are differences between hedge funds and mutual funds EXCEPT

hedge funds use money collected from savers to make investments

Money market mutual funds

hold portfolios of short-term assets

The original intention of the Fed's role as lender of last resort was to make loans to banks that were

illiquid, but not insolvent

The Glass-Steagall Act was designed to

legally separate investment banking from commercial banking.

Most of the TARP funds were used to

make direct purchases of preferred stock in banks to increase their capital

The shadow banking system refers to

nonbank financial institutions such as investment banks and hedge funds

Mutual funds

sell shares to savers and purchase assets with the funds

Which of the following activities is NOT a primary concern of investment banks?

taking in deposits and making loans

A bank panic occurs when

the situation in which many banks experience a bank run simultaneously

Banks have a maturity mismatch since

they borrow short term, but lend long term

Banks face liquidity risk because

they can have difficulty meeting their depositor's demands to withdraw money.

Which of the following is NOT a reason that firms in the shadow banking system were more vulnerable than commercial banks during the financial crisis of 2007-2009?

They were more heavily regulated than commercial banks, making them less able to adjust to changing market conditions.