1. Which of the following factors worsen the conditions in financial markets? *

a. Increased bank panics

b. Anticipated increases in the price level

c. Decreased interest rates

d. a and c only

e. b and c only

2. Which of the following is a correct definition of debt deflation? *

a. A decrease in net worth as price levels fall while debt burden remains unchanged.

b. A decrease in bond prices as default rates rise.

c. A decrease in general debt levels due to deleveraging.

d. An increase in net worth, leading to a relative fall in general debt levels.

e. None of the above

3. What is deleveraging? *

a. it is the process of cutting back in lending by financial institutions.

b. it is the process of reducing debt owed by banks.

c. it is the process of decreasing banks deposits

d. both A and B.

e. none of the above

4. Based on the efficient market hypothesis, if you take the advice of a financial analyst when investing in financial markets, you will: *

a. Certainly earn higher returns than if you do not take his advice

b. Always earn lower returns than if you do not take his advice

c. Earn the same level of return than if you do not take his advice

d. Always earn abnormal returns than if you do not take his advice

e. None of the above

5. The increase in interest rates have a direct effect on increasing adverse selection problems and promoting financial crises by: *

a. increasing firms' and households' interest payments, therefore increasing their cash flow.

b. increasing firms' and households' interest payments, therefore decreasing their cash flow.

c. decreasing firms' and households' interest payments, therefore increasing their cash flow.

d. decreasing firms' and households' interest payments, therefore decreasing their cash flow.

e. None of the above

6. The shadow banking system is defined as: *

a. The underground banking system used for illegal activities

b. The subsidiaries of depository institutions

c. Any non-bank financial institution that supply liquidity

d. b and c are correct

e. None of the above are correct

7. Which the following best describes the random walk hypothesis? *

a. Prices overtime are related to the economic situation

b. Prices change overtime are independent

c. Prices vary overtime in a proportional manner

d. The change in prices today are dependent on historical price changes

e. All of the above are correct

8. Financial crises: *

a. are major disruptions in the financial markets

b. are characterized by sharp declines in asset prices

c. occur when moral hazard incentives and adverse selection become significant on the financial market.

d. lead to the failure financial and non-financial firms.

e. all of the above are correct

9. The current price of a security is, according to the efficient market, equal to: *

a. Net present value of future interest payments

b. The highest successful bidder

c. The fair price determined using all available information

d. All of the above

e. None of the above