Question

34) Subprime assets lost value rapidly between 2007 and 2009. This lowered the value of banks that had exposure to these assets and financial institutions that had exposure to banks that were exposed to subprime risk. Since the assets were hard to value they were not acceptable as collateral. This made banks illiquid and this scared away the suppliers of bank capital. A liquidity crisis turned into a credit crisis for many financial institutions such as WAMU, Wachovia, Lehman and others.

it is True False

30 The market value of a bank’s net worth is defined as the value of its assets less the value of its liabilities. If a bank’s assets lose value and its liabilities do not change in value, the bank’s net worth will decline.

it is True False

31 ) A bank is insolvent when:

		value of its assets exceed its liabilities.
		value its liabilities exceed its assets.
		value of its assets increase in value.
		value of its capital exceeds its liabilities.

Answer 1