Financial Crisis and Legal Consequences Quiz

The collapse of major financial institutions worldwide triggered by the subprime mortgage crisis.

A legal document declaring inability to pay creditors.

A key characteristic of a recession is a decline in GDP for two consecutive quarters.

The practice of spreading investments across different assets to reduce risk is called diversification.

A situation where the price of an asset or security exceeds its fundamental value is termed an Asset Bubble.

A sudden and severe drop in the value of a currency relative to other currencies is termed Devaluation.

Rapid economic growth is not a typical indicator of a financial crisis.

'Too Big to Fail' refers to institutions crucial to the economy supported by government intervention to prevent collapse.

Russia experienced a late 1990s financial crisis with currency devaluation, high inflation, and an IMF bailout.

The practice of purchasing risky assets with borrowed money in the hope of making substantial profits is called leverage.

Central banks often implement Quantitative Easing during a financial crisis to stimulate economic activity and stabilize financial markets.

Excessive government regulation is NOT a factor contributing to the emergence of financial crises.

Legislation enacted in response to the 2008 crisis to regulate the financial industry and prevent future crises.

Credit rating agencies played a role in the 2008 crisis by failing to accurately assess the risk of mortgage-backed securities, contributing to the crisis.

During a financial crisis, a 'fire sale' refers to a sale of assets at discounted prices due to urgent liquidity needs.

During a financial crisis, a 'haircut' in the context of banking refers to a proportionate reduction in the value of deposits or assets pledged as collateral.