All of the Following Statements Is Correct Except

question 116

Multiple Choice

All of the following statements is correct except

• A) The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
• B) During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate major stresses to the financial system-both for issuers and investors.
• C) During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (commercial paper) and placing funds in the safest assets (T-Bills).
• D) During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (T-Bills) and placing funds in the safest assets (corporate bonds).

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Definitions:

Coupon Interest Rate

The annual interest rate paid on a bond, expressed as a percentage of the face value, paid from issuer to bondholder.

Straight Bonds

Debt securities issued by corporations or governments that pay periodic interest payments and return the principal amount at maturity without any special features such as convertibility or callability.

Special Purpose Vehicles

Legal entities created for a specific purpose, often to isolate financial risk by segregating certain assets or activities.

Mortgage Securitization

The process of pooling various mortgage loans into a single security which investors can purchase.