Financial crises

a - cause failures of financial intermediaries and leave only securities markets to

b - channel funds from savers to borrowers.

c- are a recent phenomenon that occur only in developing countries.

d -invariably lead to debt deflation.

e -are major disruptions in financial markets that are characterized by sharp declines

in asset prices and the failures of many financial and nonfinancial firms.

2. In an advanced economy, a financial crisis can begin in several ways, including

a -mismanagement of financial liberalization or innovation.

b -asset pricing booms and busts.

c -an increase in uncertainty caused by failure of financial institutions.

d -all of the above.

3. A financial crisis occurs when information flows in financial markets experience a particularly large disruption.

a -True

b -False

4. What is a credit boom?

a -An explosion in a credit cycle, which can increase or decrease lending in the

short-run

b -Essentially a lending spree on the part of banks and other financial institutions

c -When credit card receivables rise due to low initial interest rates

d -The signal of the end of a credit spree, with credit contracting rapidly

5. The process of deleveraging refers to

a -cutbacks in lending by financial institutions.

b -a reduction in debt owed by banks.

C. both A and B.

D. none of the above.