One Lesson from the Credit Crunch Is That

question 21

Multiple Choice

One lesson from the credit crunch is that

• A)in the aggregate, credit scores tend to understate the probability of default-thereby a pool of subprime mortgages is actually quite a safe investment since not every borrower defaults.
• B)moral hazard, while an issue in the market for used cars, does not seem to affect the U.S. financial system due to the effective regulatory environment.
• C)bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to MBS investors rather than hold the paper themselves.
• D)none of the above

Grasp the concept of stakeholder orientation and its significance for business success.

Describe the normative and conceptual approaches to stakeholder theory.

Understand the role of shareholders and suppliers and what they offer to organizations.

Identify the activities associated with stakeholder orientation.

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Definitions:

Covert Collusion

An implicit secret agreement between parties to fix prices, divide markets, or rig bids without explicit verbal agreement, making it hard to detect and prosecute.

Cartel

An association of independent businesses organized to control prices and production, restrict competition, and monopolize markets.

Price Leadership

A situation where the largest or most dominant company in an industry sets prices that other companies then follow.

General Electric

An American multinational conglomerate involved in various sectors including energy, aviation, and healthcare.