1. Credit default swaps contributed to the crisis in all the following reasons except:

a. Financial institutions relied heavily on credit default swaps to protect themselves from default risk.

b. Credit defaults swaps relaxed the lending standards of banks.

c. Banks used credit default swaps because they were eager to sell them to unwitting consumers.

d. All of the above are true.

2. You are the buyer of a call option which expires today. The call premium is $0.75 and the exercise price is $13.50. The underlying stock price is 12.50. What is your profit or loss?

a. Gain $75

b. Gain $100

c. Loss $75

d. Loss $25

e. None of the above.