FINC 4331 UPDATED Exam Questions and CORRECT Answers

How could Federal Reserve policy in the 2001 recession have possibly been a catalyst that eventually led to the 2007-09 financial crisis? - To keep recession away, the Federal Reserve lowered the Federal funds rate 11 times - from 6.5% in May 2000 to 1.75% in December 2001 - creating a flood of liquidity in the economy. Culprits for Financial Crisis: The lenders - lent funds to people with poor credit and a high risk of default. Culprits for Financial Crisis: Homebuyers - buying houses they could barely afford. They were able to make these purchases with non-traditional mortgages (such as 2/28 and interest-only mortgages) that offered low introductory rates and minimal initial costs such as "no down payment".