Conditions That Likely Contributed to a Credit Crunch in 2008

question 57

Multiple Choice

Conditions that likely contributed to a credit crunch in 2008 include:

• A)capital shortfalls caused in part by falling real estate prices.
• B)regulated hikes in bank capital requirements.
• C)falling interest rates that raised interest rate risk,causing banks to choose to hold more capital.
• D)increases in reserve requirements.

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Definitions:

Cash Equivalents

Temporary investments with high liquidity that can be quickly converted into precise cash amounts and carry minimal risk of fluctuating in value.

Marketable

Refers to assets or securities that are easily bought or sold in the market because of their high demand, liquidity, or both.

Bid Price

The highest price a buyer is willing to pay for a security or asset.

Treasury Bill

A short-term government security issued at a discount from the face value and matures at par, providing a return to the holder at maturity.