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Question 1

Define a Bubble

Answer 1

An economic cycle that is characterized by the rapid
escalation of market value, particularly in the price of assets, a fast inflation that is followed by a quick decrease in value, or a contraction, sometimes referred to as a “crash” or a “bubble burst.”

Question 2

Define Financial crisis

Answer 2

A situation where assets drop sharply in value, businesses and consumers struggle to pay their debts, and liquidity dries up.

Question 3

Define financial instability

Answer 3

Temporary minor disruption that does not affect the
financial market or the financial industry

Question 4

3 types of Financial Crises

Answer 4

Currency crises
Debt crises
Banking crises

Question 5

Define a System

Answer 5

a functioning mechanism governing a set of elements:
§ that makes reference to something or to a central concept in a coherent fashion (“deductibility”);
§ that implies meaningful relationships between its elements (“irreducibility”); and
§ to the extent that it evolves, that it keeps its identity

Question 6

Define a Systematic Risk

Answer 6

the disruption to the flow of financial services that is (i) caused by an impairment of all or parts of the financial system; and (ii) has the potential to have
serious negative consequences for the real economy

Question 7

Features inherent in the financial system that can amplify a small event into a major crisis include: (3)

Answer 7

§ balance sheet issues (levels of leverage and liquidity);
§ constraints on the way that institutions behave that are
imposed either by regulators or the institutions themselves;
§ the way in which market participants react to each other in times of both relative calm and stress.