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Which of the following best defines systemic risk? The degree to which securities can easily be sold without a loss of value The idea that
Which of the following best defines systemic risk?
The degree to which securities can easily be sold without a loss of value
The idea that due to the high amounts of business transactions between financial institutions, financial instabilities that occur in just a few
financial institutions can very easily spread to others.
The idea tht in a financial transaction, one party has more information than the other party
The idea that the failure of one institution is an isolated event and will not affect other institutions and markets in the financial system
Which of the following scenarios represents a major source of systemic risk? Check all that apply.
Origin Savings and Loan Association originate thousands of subprime mortgages that are then sold to commercial banks, securities firms,
and other savings institutions.
Smallwood Bank, which is a fictional bank with only deposit accounts among its members, fails one day and is unable to meet its
obligations.
New Leaf Investment Bank relies heavily on shortterm debt to finance their operations and uses their holdings of mortgagebacked
securities as collateral. Suddenly the prices of mortgage backed securities plummet, and they can no longer issue shortterm debt to pay
off the principal on maturing debt.
The Financial Reform Act was passed in to provide stability to the financial system, and it mandated that financial institutions
granting mortgages must conduct more thorough financial checks on lendees in an attempt to improve on standards that caused the
credit crisis of
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