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B. The participants in the Mortgage Pass Through all face the same
level of risk.
C. They are exactly the same instrument.
D. The traditional Mortgage Pass Through only exists for Subprime
mortgage markets.
6. The subprime mortgage market:
A. Did not exist prior to 2004.
B. Was a problem for banks because of the below market interest
rates they were forced to charge.
C. Was a government creation to offer bank holding companies shortterm liquidity.
D. Used to finance borrowers with a poor credit history but
demonstrated ability to pay.
7. The Efficient Market Hypothesis holds that:
A. Prices need not represent market value.
B. Inefficiencies in asset prices cannot last long.
C. Income and substitution effects between competing parties are
exactly equal.
D. Price discovery mechanisms lead to market contractions.
8. Much of the justification for bank regulation is due to
A. The presence of negative externalities in the system.
B. The presence of a persistent free rider problem in the system.
C. The asset transformation role played by banks.
D. The problems that are caused by a dual banking system.
9. Which is not a solution to the Adverse Selection problem?
A. Information collection
B. Government required Disclosure
C. Interest rate ceilings
D. Screening