F8

Question 1

introduction to financial crisis

Answer 1

mismanagement of financial liberalization or innovation
asset price boom and bust
interest rate change
increased uncertainty

Question 2

mismanagement of financial liberalization or innovation

Answer 2

eliminations of regulations
government safety nets increase moral hazard for banks
loan to not credit worthy people/companies
losses os loans causes net worth decline
banks cut back on lending
moral hazard and adverse selection increase

Question 3

credit boom

Answer 3

lending spree to everyone

Question 4

deleveraging

Answer 4

cut back on loans

Question 5

asset boom and bust

Answer 5

increased credit
increased assets buying
price rise
when price bust people/companies can not pay back loan and leaves asset to the bank
bank lose net worth and don’t want to lend money to companies with lower net worth
deleveraging

Question 6

interest rate changes

Answer 6

increased interest rate
increased moral hazard and adverse selection
bad credit risks are still willing to borrow
banks don’t want to lend at all cause’ of the risks

Question 7

banking crisis

Answer 7

net worth becomes negative for some banks and they can therefore not pay off depositors or creditors
bank panic
depositors run to the bank to get money out
banks sell assets and prices fall even more

Question 8

bank panic

Answer 8

several banks fall at the same time

Question 9

debt deflation

Answer 9

prices decline which lower worth of assets
fixed interest makes liabilities rise in value and burden
drops lending and economic activity

Question 10

shadow bank system

Answer 10

non-bank financial intermediaries that provide simular service but without the same regulations as banks

Question 11

credit default swap

Answer 11

a type of insurance against bond defaults