3. What is a collateralized debt obligation? *

a. A tranche of an SPV that has been setup based on default risk

b. An agreement to exchange interest payments when one party defaults

c. A type of insurance against defaults

d. A contract between credit rating agencies

e. None of the above

4. An investment bank is a financial institution that: *

a. bundles small deposits into larger loans.

b. helps corporations raise funds.

c. holds most of its assets in commercial paper.

d. does all of the above.

e. does only A and B of the above

6. The certainty equivalent for risk-averse people who buy insurance is the *

a. maximum loss they may sustain.

b. expected loss they may sustain.

c. insurance premium they pay.

d. profit the insurance company earns.

e. None of the above

7. Tasks that investment bankers perform when acting as underwriters to sell securities to the public include*

a. pricing the security.

b. preparing the filings required by the Securities and Exchange Commission.

c. arranging for the security to be rated.

d. all of the above.

e. only A and B of the above.

8. To prevent the moral hazard problem, health and life insurance companies may write policies *

a. that increase benefits dramatically once the policyholder is discovered to have contracted an illness so that the patient can recover sooner.

b. containing provisions which either reduce or eliminate benefits to persons who contract prespecified illnesses.

c. boosting the amount the companies will pay health providers in the event that claims are submitted by policyholders.

d. With all of the above provisions

e. with only A and B of the above provisions

9. Stage Three of a financial crisis in an advanced economy usually involves ________ . While Stage Two features _________. *

a. an increase in general price levels; a banking crisis

b. an increase in general price levels; a currency crisis

c. debt deflation; a banking crisis

d. debt deflation; a currency crisis

e. None of the above

10. Investment banks sell ________ securities to the public, and brokerage firms sell ________ securities to the public. *

a. new; existing

b. new and existing; existing

c. existing; new

d. existing; new and existing

e. none of the above