Financial Institutions, Instruments and Markets 9th Edition by Christopher Viney Test bank

AACSB: Reflective thinking
Bloom's: Comprehension
Difficulty: Easy
Est time: 1-3 minutes
Learning Objective: 1.05 Distinguish between various financial market structures, including wholesale markets and retail markets, and money markets and capital markets.
Section: 1.04 Financial markets
Topic: Financial markets


 
114. The fundamental cause of a crisis is established in the boom period. Describe how a financial crisis starts in the boom. You can illustrate this with either the Asian financial crisis or the sub-prime mortgage crisis.
Ans: For example, the seeds for the sub-prime crisis were planted in the 1990s with government promotion and pressure to extend home ownership to people who would not qualify for traditional mortgages (not detailed in textbook). Financial institutions followed by creating and promoting sub-prime mortgages. The creation of sub-prime mortgages helped engineer a housing boom, particularly after the dot-com crisis had passed. Federal Reserve policy pushed interest rates low for an extended period. Low interest rate policy had an outsized impact on long-dated assets such as real estate construction. So the lethal combination of sub-prime mortgages and low interest rates fuelled the boom, which inevitably led to the bust. Prices for homes rose at a high rate until they became increasingly unaffordable. Once the perception of rising house prices ended and indeed reversed, many homeowners found that they were underwater, that is the debt owed was greater than the value of the house. This led to massive defaults, many of which were opportunistic (debtor with ability to pay).
AACSB: Reflective thinking
Bloom's: Comprehension
Difficulty: Hard
Est time: 1-3 minutes
Learning Objective: 1.01 Understand the basic frameworks that underlie the facts that characterise financial institutions, financial instruments and financial markets.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


 
115. Explain why restrictions on capital movements are not consistent with globalisation.
Ans: Capital movements facilitate the purchase of assets in other countries, which helps to integrate or globalise business. One final product can be assembled from subparts produced in many disparate locations and countries. Capital movements allow for decision making to seek out the best modes of production and markets into which products can be sold. With capital restrictions production and trade will be more country-based, which foregoes the gains from trade.
AACSB: Reflective thinking
Bloom's: Comprehension
Difficulty: Hard
Est time: <1 minute
Learning Objective: 1.01 Understand the basic frameworks that underlie the facts that characterise financial institutions, financial instruments and financial markets.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


Chapter 01 Testbank Summary
Category# of Questions
AACSB: Communication67
AACSB: Diverse and multicultural1
AACSB: Reflective thinking47
Bloom's: Analysis1
Bloom's: Application1
Bloom's: Comprehension29
Bloom's: Evaluation5
Bloom's: Knowledge49
Bloom's: Synthesis30
Difficulty: Easy66
Difficulty: Hard8
Difficulty: Medium41
Est time: 1-3 minutes5
Est time: 2-3 minutes1
Est time: <1 minute109
Learning Objective: 1.01 Understand the basic frameworks that underlie the facts that characterise financial institutions, financial instruments and financial markets.2
Learning Objective: 1.02 Explain the functions of a modern financial system and categorise the main types of financial institutions, including depository financial institutions, investment banks, contractual savings institutions, finance companies and unit trusts.33
Learning Objective: 1.03 Define the main classes of financial instruments that are issued into the financial system, that is, equity, debt, hybrids and derivatives.18
Learning Objective: 1.04 Discuss the nature of the flow of funds between savers and borrowers, including primary markets, secondary markets, direct finance and intermediated finance.56
Learning Objective: 1.05 Distinguish between various financial market structures, including wholesale markets and retail markets, and money markets and capital markets.1
Learning Objective: 1.06 Analyse the flow of funds through the financial system and the economy, and briefly discuss the importance of ‘stability’ in relation to the flow of funds.4
Learning Objective: 1.08 Appreciate the effects, consequences and relevance of the Asian financial crisis.1
Section: 1.01 Theory and facts in finance1
Section: 1.02 The financial system and financial institutions22