Question 41Collateralised debt obligations (CDOs) were responsible for significant damage and disruption to global financial markets as:the securities' cash flow was based on cash flows from other financial securities and not the cash flows from real assetsinvestors accepted the recommendations of CDO arrangers and rating agenciesO the CDOs' cash flows were based on cash flows from real assets and not from other financial securitiesO many investors were unable to assess the fairness of prices

The statement that accurately describes why collateralized debt obligations (CDOs) were responsible…

Answered: Collateralised debt obligations (CDOs)…

Business/Professional Ethics Directors/Executives/Acct

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Chapter8: Subprime Lending Fiasco-ethics Issues

Section: Chapter Questions

Problem 10Q

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View Policies Current Attempt in Progress The widely publicized subprime lending crisis was NOT caused by O capital market participants who acted in their own self-interest. O a lack of investor understanding of the investment's true risk. O the practice of securitizing assets. O a lack of transparency. Save for Later
Market risk is defined as the risk: Question 1Answer a. Incurred by granting loans to companies that do not hold a large market share. b. Incurred in the trading of assets and liabilities due to changes in interest rates, exchange rates and other asset prices. c. That a sudden surge in liability withdrawals may require FIs to liquidate assets at less than fair market prices. d. That an FI loses market share.
Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity. For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets. A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.
QUESTION 15 Managers that structure financing transactions and choose accounting methods that exclude debt on the company’s balance sheet are using hidden reserves. fraudulent methods by default. performance overstatement. off-balance-sheet financing.
Subject 3 A. Proponents of the use of Fair Value Accounting (FVA) argue that the use of fairvalue reflects current market conditions. On the contrary, opponents of the FVAargue that under specific circumstances, such as a financial crisis, mark-to-marketaccounting may lead to considerable volatility in the financial statements andespecially the Income Statement (Laux and Leuz, 2009). Critically discuss themerits and flaws of FVA in relation to cost accounting. Recommended Reference Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense ofthe recent debate. Accounting, organizations and society, 34(6-7), 826-834.
Which of the following is not a factor that can provide financial instability? a. Decreases in interest rate b. Increase in uncertainty c. Negative shocks to firms’ balance sheets d. A deterioration in FI’s balance sheets
Which of the following statements is false? A. Funding risk is the risk that a firm will not be able to meet its (short-term) financial obligations when due. B. Banks have high levels of liquidity assets and stable funding since the financial crisis. C. Basel II employ the value at risk (VaR) to measure credit risk and operational risk. D. The covariance cannot be measured in units.
The "mark to market" rule (a) Created an unrealistic picture of the financial health of some banks. (b) Required banks to recognize in their balance sheet decrease in value of assets as their price declined in the market, instead of waiting until the asset was sold. (c) Caused the net worth of some banks to decline significantly and making it impossible for the banks to make loans. (d) All the above. (e) Only (b) and (c) are true.
Question 11 Which of the following is a distinctive feature of a credit-driven asset-price bubble? The affected assets are financial stocks or bonds issued by companies in the financial sector. a weakening of lending standards an increase in the number and variety of market participants asset-price increases that are "justified" by projections of future value
Which of the following statements is false? A. Credit spreads narrow during an economic recession. B. Credit spreads tend to narrow as broker-dealers become more willing to provide capital. C. Less creditworthy issuers are subject to high market liquidity risk. D. None of the above.
Recession, inflation, and high interest rates are economic events that are best characterized as being a. company-specific risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. d. irrelevant except to governmental authorities like the Federal Reserve. e. systematic risk factors that can be diversified away.
Financial intermedires play a crucial role in an economic crisis they are responbile for both causing The market to crash and then helping it recover from the crisis is this statement true?Discuss with an example

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