fin 360

I am familiar with the basic issues in fintech that are legal for now, but will lead to loss of trust in finance, litigation and future litigation

true

Many New Orleans residents did not have home insurance because the premiums had increased

true

On average banks started the 2008 financial meltdown with half their assets off the balance sheet because it was legal to do it

true

Procrastination and financial illiteracy are personal finance topics examined by behavioral finance

true

The dual mandate of the Fed is employment maximization and stability of prices

true

The greatest strength of bitcoin is its underlying blockchain technology

true

When buying a car

we need to justify the needs vs wants, advertising and social pressure it is not a good idea to borrow to buy a car because of depreciation we need to consider budget and needs even if it is a "deal"

Prospect theory explains

why we fear losses more than become happier with gains

The causes of the 2008 crisis include

deregulation conflicts of interest of rating agencies moral hazard by banks structural problems in supply and demand of safer securities

Behavioral finance examines

emotional and cognitive biases first studied by psychologists

The dual mandate of the Fed is

employment maximization and price stability

In buying-on-margin and short-selling there is a broker call if

equity to assets maintenance margin is violated

Future regulation of high frequency trading is likely to

exclude protections for "dark pool" investors include protections for retail investors consider academic research findings

Supporting discussion answers with reference to at least course materials is

important to help move discussion forward important to maximize participation points important to facilitate understanding by others important to avoid plagiarism

The origin of behavioral finance is

in psychologists in Israel trying to understand the world

The trend world-wide is for central banks to be

independent from executive powers

On average banks started the 2007-2008 crisis with about half their assets off the balance sheet because

it allowed them to minimize capital requirements it was legal it allowed them to maximize profits

Taking notes while watching videos such as the 2008 Financial Meltdown video is important because

it helps maintain focus and prepare for discussion, test questions, and non-anonymous zoom poll questions

The problem with GDP is that

it is a quarterly measure

I always consider, whether it is a CFA case or not, the ethical decision making framework of identification of key information, duties and conflicts, and neutralize negative situational influences with training, disclosure and consultation with compliance officers

true

The depository institutions are

commercial banks, credit unions, and thrifts

Which are the rationalizations for Immoral Behavior as per CFA?

ALL CORRECT Deny responsibility, injury and victim The ledger Social Weighting

Behavioral finance experts have been awarded Nobel Prizes since the 60s

False

In a recession GDP declines by more than 10% and lasts longer than 3 years

False

The discussion of high frequency trading includes those that claim it has decreased liquidity vs those concerned about less democratization of capital markets

False

When things change, people may underreact because of representativeness, or overreact because of conservatism

False

When I make financial decisions

I consider my needs, including safety savings, before wants

When I receive a credit card offer

I pay close attention to fee conditions

The macroeconomic variable that most moves the markets and guides decisions by the Fed is

PMI

Robo-advisors in wealth management and investments are already common in

Peer-to-peer lending platforms

Fintech is disintermediating finance, but it is expected to co-exist with traditional institutions as competitor, partner or even under the same roof because of complementary strengths

True

Glass-Steagall Act fully separated investment and commercial banking between 1933 and 1999, and its repeal exacerbated the risks of the 2007-2009 Great Recession

True

Heuristics, or rules of thumb, make decision-making easier but can sometimes lead to suboptimal investment decisions

True

Keeping a budget of expenses is an important step to financial health

True, even if your income is very limited

Equity to assets maintenance margin is defined as

Variable value of shares minus constant debt, all divided by variable value of shares (price x number of shares) in buying on margin

I have worked on buying-on-margin and short-selling problems asking questions in my small group

Yes, and I have contact information other than email

Moral hazard refers to

a type of ex-post information asymmetry problem not having an incentive to limit risk because somebody else bears the additional potential losses not having an incentive to limit risk aiming to increase profits for some

The 2007-2009 Great Recession was caused by

all are correct deregulation lack of financial literacy moral hazard

The monetary policy tools of the Federal Reserve are

all correct changes in Fed rate target changes in bank capital reserve levels discount-window, being the lender of last resort

Investors keep a close eye on inequality indexes beyond GDP and other macroeconomic variables such as PMI because

all correct increases in inequality increase political risk increases in inequality lead to deterioration of other variables increases in inequality increase investment risk

Which are common negative situational influences?

all correct obedience conformism incentives-framing incrementalism overconfidence

To support crisis economies, the Fed

all of the above buys treasury securities from member banks, increasing their access to cash has greater access to cash, Fed as lender of last resort and cash in exchange for treasuries that helps lower interest rates is likely to change reserve levels if the crisis is severe and motivated by deregulation

One solution to the variations in marketing of credit card fees depending on income could be

all of the above increase financial literacy of general population increase awareness of different ways fees are presented regulate to anticipate class action litigation

The most heavily regulated financial institutions are the depository institutions because they

all of the above take deposits transmit monetary policy provide maturity inter-mediation

Moral malleability is defined as

all of the above temporary flexing of moral standards with a purpose of justifying (consciously or unconsciously) immoral choices and behavior when it is legal in the short or long run

The Fed is a hybrid structure because

all of the above the Fed Board is an independent government agency the regional Feds are private corporations member banks own stock of the regional Feds

Adverse selection refers to

an ex-ante information asymmetry problem knowing more about ourselves than the other party does

Short-selling involves

believing stock prices will fall

Buying on margin involves

borrowing cash to buy shares

Fedcoin would change the value of other cryptocurrencies based on blockchain technology given the support from

both Fed and Treasury

We need to understand the limitations of credit score algorithms that use digital footprint in order to anticipate

both litigation and regulation

Behavioral finance assumes rational behavior

false

Both in the case of buying on margin and short-selling, investors need to observe maintenance margin or assets to equity ratio

false

Buying on margin strategy involves borrowing shares to sell high first and then buy low to repay

false

In short-selling equity considers fixed debt, while in buying-on-margin, the debt is shares that are owed and variable in price

false

Limits of arbitrage means we can make money without incurring risk

false

Moral hazard is a term coined for banks

false

Moral hazard refers to an incomplete form of risk and return trade-off where there is no upside for extra-risk because someone else bears the potential losses

false

When we choose to repay debt over a longer period of time our monthly payments and interest are smaller

false

The advocates of high frequency trading consider

more over-the-counter trading higher liquidity for financial securities faster execution in market-hubs

Information asymmetries

refers to an array of obstacles to financial contracting can be ex-ante or ex-post

Generalizing recent outcomes is an example of

representativeness

The big umbrella-term for obstacles to finance contracts is

one of these two: information asymmetries moral hazard

Too-little diversification is an example of

overconfidence

Not selling losing shares at the end of the calendar year is an example of

prospect theory

When gains make us less happier than the increase in unhappiness when we lose the same amount of capital, we have evidence of

prospect theory

PMI estimation follows a survey to

purchasing managers in private manufacturing companies because they are credited with being accurate forecasters of market confidence

The regional banks appoint a percentage of Fed directors because

the Fed was designed as a system with check and balances

Behavioral finance is

the explanation for market bubbles

The detractors of high frequency trading discuss

the insufficient regulation of financial innovations

When I take a loan, if I choose to repay in a longer period of time

the monthly payments will be lower, but interest payments higher

High frequency trading refers

the need for powerful algorithms the need to trade close to market servers trading at the speed of light

When the Fed backed the rescue of Bear Stearns in Spring 2008

they punished moral hazard by pricing shares at $2

"Law of small numbers" refers to representativeness, when people put too much weight on recent experience

true

Buffett does not think markets are rigged, despite HFT

true

Buying on margin is a strategy investors follow when stock prices are expected to rise

true

Financial institutions include mutual funds, banks, insurance, hedge funds and others

true

Fintech is changing finance from cradle to grave, all types of services

true