Business And Professional Ethics For Directors Executives Accountants 8th Edition By Brooks – Test Bank

1. Some observers claim that the U.S. Federal Reserve Board encouraged the housing and credit bubbles by
a. not regulating subprime mortgages.
b. cutting interest rates.
c. enforcing mark to market accounting.
d. not regulating subprime mortgages and cutting interest rates.
e. not regulating subprime mortgages and enforcing mark to market accounting.
ANSWER: d
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:20 AM
DATE MODIFIED: 4/12/2018 8:25 AM

2. According to former Federal Reserve Chairman Alan Greenspan, the Fed became concerned about subprime lending in 2000; however,
a. the global demand for mortgage-backed security ended in 2005.
b. the quality of mortgage products began to deteriorate in 2005.
c. the global demand for mortgage-backed security started in 2003.
d. the quality of mortgage products began to deteriorate in 2003.
e. the global demand for mortgage-backed security ended in 2008.
ANSWER: b
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:27 AM
DATE MODIFIED: 4/12/2018 8:27 AM

3. The 1933 Glass-Steagall Act precluded banks from
a. subprime lending.
b. selling insurance.
c. underwriting insurance generating more than 10% of total banking income.
d. underwriting securities generating more than 10% of total banking income.
e. underwriting any securities.
ANSWER: d
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:28 AM
DATE MODIFIED: 4/12/2018 8:29 AM

4. Which of the following is NOT an example of aggressive lending practices contributing to the subprime crisis?
a. Mortgagors were not required to make any down payment at the inception of the loan.
b. Loans were given to people with poor credit histories.
c. Loans were given to people with no income.
d. A borrower could get a second mortgage and use it as down-payment.
e. None of these are correct.
ANSWER: a
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:30 AM
DATE MODIFIED: 4/12/2018 8:30 AM

5. In simple terms, a mortgage-backed security is
a. a portfolio of mortgages sold to investors through publicly issued bonds.
b. a contract that transfers ownership of a lender’s mortgages receivable.
c. a contract that transfers the risk of non-collection from mortgage originators to other investors.
d. a portfolio of mortgages sold to investors through publicly issued bonds, and a contract that transfers the risk of non-collection from mortgage originators to other investors.
e. All of these are correct.
ANSWER: e
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Comprehension
DATE CREATED: 4/12/2018 8:31 AM
DATE MODIFIED: 4/12/2018 8:31 AM

6. In simple terms, the securitization process is
a. a way to sell structured investment vehicles (SIVs).
b. a way to sell accounts receivable by mortgage lenders to public investors.
c. a way to create high-yield investments with little risk.
d. a way to sell structured investment vehicles (SIVs), and a way to create high-yield investments with little risk.
e. All of these are correct.
ANSWER: b
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Comprehension
DATE CREATED: 4/12/2018 8:32 AM
DATE MODIFIED: 4/12/2018 8:33 AM

7. Mortgage-backed securities lost their value when
a. the underlying assets lost their value.
b. borrowers (the mortgagees) walked away without real obligation to repay.
c. mortgage originators went bankrupt.
d. the underlying assets lost their value, and borrowers (the mortgagees) walked away without real obligation to repay.
e. mortgage originators went bankrupt, and borrowers (the mortgagees) walked away without real obligation to repay.
ANSWER: d
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:34 AM
DATE MODIFIED: 4/12/2018 8:36 AM

8. Which entities worked as second party consolidators, purchasing loans and reselling them to investors?
a. Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac)
b. structured investment vehicles (SIVs)
c. credit rating agencies
d. investment banks
e. All of these are correct.
ANSWER: a
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:37 AM
DATE MODIFIED: 4/12/2018 8:38 AM

9. Rating agencies were exposed to a conflict of interest because
a. credit rating agencies were rating securities and investing in those securities.
b. credit rating agencies used ratings to sell securities.
c. clients of the credit rating agencies used ratings to sell securities.
d. investors do not want rating downgrades.
e. credit rating agencies were paid by the firms who created the securities being rated.
ANSWER: e
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:39 AM
DATE MODIFIED: 4/12/2018 8:40 AM

10. Which of these regulators were aware of the problem and tried to blow the whistle in 2003?
a. Security and Exchange Commission and Federal Reserve Board
b. Iowa and North Carolina State Attorneys
c. Office of the Comptroller of the Currency and Office of Thrift Supervision
d. federal banking regulators
e. None of these are correct.
ANSWER: b
POINTS: 1
REFERENCES: How did the Subprime Lending Crisis Happen?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
KEYWORDS: Blooms: Remembering
DATE CREATED: 4/12/2018 8:40 AM
DATE MODIFIED: 4/12/2018 8:41 AM