FINANCE-We are using Misunderstanding Financial Crises:

We are using Misunderstanding Financial Crises: Why We Don't See Them Coming by Gary Gorton

1. Using monthly data from the Board of Governors statistical release on interest rates (H.15 Selected Interest Rates) please answer the following questions.

In October of 2008 the spread between 3 month financial commercial paper and 3 month constant maturity treasury securities was only 25 basis points. This is because the Fed flooded the market with reserves just before Lehman Brothers collapsed in order to moderate the impact on the financial markets.

True

False

2. Using monthly data from the Board of Governors statistical release on interest rates (H.15 Selected Interest Rates) please answer the following questions.

In January of 2002 there was a flight to quality in the financial markets. This is indicated by the interest rate spread between 3 month financial commercial paper and 3 month constant maturity treasury securities. This spread increased to 180 basis points in January of 2002.

True

False

3. Using data from the Z.1 statistical release published by the Board of Governors of the Federal Reserve please answer the questions based on the following data series.

Households and nonprofit organizations; home mortgages; liability

Nonprofit organizations; commercial mortgages; liability

During the first quarter of 2009 home mortgages on the balance sheets of households and non-profit organizations increased by $138.703 billion dollars.

True

False

4. Using data from the Z.1 statistical release published by the Board of Governors of the Federal Reserve please answer the questions based on the following data series.

Households and nonprofit organizations; home mortgages; liability

Nonprofit organizations; commercial mortgages; liability

During the first quarter of 2010 home mortgages on the balance sheets of households and non-profit organizations declined by $407.629 billion dollars.

True

False

5. Using data from the Z.1 statistical release published by the Board of Governors of the Federal Reserve please answer the questions based on the following data series.

Households and nonprofit organizations; home mortgages; liability

Nonprofit organizations; commercial mortgages; liability

During the second quarter of 2006 home mortgages on the balance sheets of households and non-profit organizations increased by more than $1 trillion dollars.

True

False

6. Using data from the Z.1 statistical release published by the Board of Governors of the Federal Reserve please answer the questions based on the following data series regarding Finance Companies.

Commercial paper issued by finance companies was negative in every quarter from Q2 2007 through Q4 2009. This means that more commercial paper was repaid than issued.

True

False

7. Using data from the Z.1 statistical release published by the Board of Governors of the Federal Reserve please answer the questions based on the following data series regarding Finance Companies.

Outstanding commercial paper issued by finance companies declined from $200 billion in the fourth quarter of 2008 (Q4, 2008) to $56.817 billion in Q3 2010.

True

False