Answered: Explain the problem of unknown risks…

Business

Accounting

Explain the problem of unknown risks for financial instruments in furthering the 2007-2009 financial crisis.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash, Marketable Securities, And Complex Financial Instruments

Section: Chapter Questions

Problem 33RQSC

See similar textbooks

Related questions

Q: Discuss the implications of the efficient market hypothesis for financial managers and security…

A: An efficient market hypothesis is defined as the hypothesis, which used to state that the share…

Q: What caused the Collapse of 2008 in the Financial Markets? How did interest rates contribute to the…

A: Cause of economic crisis and collapse of the financial markets in 2008: The main cause was the…

Q: Which of the following statement(s) are true? In the situation of sovereign-debt crisis, the…

A: Sovereign debt is known as the debt of the central government. In this, the government issues debt…

Q: What should we do for the future to not happen like financial crises 2007?

A: This can be as it were by such extraordinary money related intercession that it handicaps the…

Q: novation cau

A: Financial markets exhibit asymmetric information in any transaction in which one of the two parties…

Q: According to Koch and MacDonald (2009), banks’ risk can be identified as six types: credit risk,…

A: Model risk is a type of risk that arises when a financial model is used to calculate quantitative…

Q: You need to describe how the Fed responded to the financial crisis of 2007 - 2009 (including the…

A: The Fed or The Federal Reserve has conducted a range of exceptional operations for economic…

Q: Which type of event started the financial crisis in 2007-2009? A. Stock market crash B.…

A: Option A is the correct answer.

Q: Give three examples of financial market anomalies discussed in the finance literature and critically…

A: Market anomalies occurs if a change in price of a share cannot be directly related to current…

Q: Which of the following is NOT true? swaps (CDS) and collateralized debt obligations…

A: Usually, the rates of any reserves for the banks and financial institutions are fixed for every bank…

Q: Value at Risk (VaR) is a statistical measure of maximum loss used by banks and other financial…

A: Value at Risk is a technique used by institutions to analyze the potential risk assessed in the…

Q: Discuss the following statements: “(1) individual financial institutions will generally have…

A: While looking at various sectors of an economy, we can observe that they all perform a little…

Q: Explain the process of securitisation as carried out by banks and discuss its role in the 2008…

A: Securitization is the process of grouping or pooling together numerous financial assets. This…

Q: Explain how macro-prudential regulations work to limit systemic risk in the financial system.

A: Systematic risks are the risks involved within the firm functionality that can be predicted and that…

Q: Why is measuring interdependencies among assets' returns, or, volatilities, important in risk…

A: Risk management refers to forecasting and evaluating the level of risks and taking appropriate…

Q: Discuss why financial systems are vulnerable to crises.

A: Financial system is the system that consist of marketplace, financial institutions, banks, insurance…

Q: How did the Efficient Mark Hyoithese play a role in the financial crisis of 2008-2009?

A: Share prices reflect all information and consistent alpha production is impossible according to the…

Q: In recent years the global economy has experienced recession levelsunprecedented since the Great…

A: Audit refers assessment of the financial statements and preparing a report, stating whether or not…

Q: Using the relevant financial securities and institutions, explain the chain of events which lead to…

A: The main reason behind the financial crisis was the deregulation in the financial industry.

Q: Why using OIS rates instead of LIBOR rates during the 2008 crisis would be more efficient and…

A: Using of OIS rate is considered as more efficient as compared to LIBOR rates during the crises of…

Q: Briefly comment on what the CAPM is for, and how it is used. How (by what) is risk measured in the…

A: The question is related to Capital Asset Pricing Model. This model was developed by Sharpe Mossin…

Q: Explain in detail that how managers of financial institutions manage interest rate risk on Balance…

A: Interest rate risk seems to be the risk of losing money on investment attributable to fluctuations…

Q: The main ratio used by many financial analysts to examine a company's short-term liquidity risk is…

A: One of the important functions of a financial manager is to continue monitoring and evaluating the…

Q: how the federal reserve handled the 2008/9 financial crisis in the u.s?

A: A financial crisis refers to the situation when the value of financial assets of a country starts…

Q: From the perspective of the treasury professional, which of the following is a type of market risk…

A: Financial risk is the risk that that indicate the chances of loss that can be incurred to the…

Q: Use FASB Accounting Standards Update (ASU) No. 2016-13 and the IFRS-9: Q: Which expected credit loss…

A: Both IASB and FASB focused on developing new financial standards since, G20 members assigned the…

Q: Explain why the highest probable key risk drivers in the Single Supervisory Mechanism risk map is:…

A: The current pandemic crisis challenges the banking system along known and unknown tracks. While the…

Q: thorough explanation of the succesful and unsuccesful financial regulation that combat the 2008/9…

A: The financial crisis refers to the situation in which the value of a country's assets declines at a…

Q: Which is correct about financial securities? a. Financial securities guarantees return to investors.…

A: "Hi, Thanks for the Question. since you asked multiple question, we will answer the first question…

Q: Since risks, such as credit, liquidity, default, technological, and legal risks, among others, may…

A: 'Financial market stability' refers to a state in which market transactions are not disrupted…

Q: nvestment banks’ risk-taking behaviour was the main cause of the financial crash of 2008. Discuss…

A: Financial crisis 2008: The subprime mortgage crisis, also known as the financial crisis of 2007–08,…

Q: Systematic risk evaluates the probability and extent of negative consequences to the larger body.…

A: Explanation:- The stock market is the marketplace in which publicly listed firms' goods and services…

Q: How can the bursting of an asset-price bubble in thestock market help trigger a financial crisis?

A: Financial crisis refers to a situation when no one in the financial market is interested to lend…

Q: The financial regulations governing the banking sector and most importantly mortgage-backed asset,…

A: The financial crisis that happened in the year 2008/9 was due to providing cheap credit and lax…

Q: In the 2008 global financial crisis many banks faced both a liquidity shock and a solvency shock.…

A: Insolvency:It is the situation when company is not able to meet its financial obligations

Q: The fallout from the financial crisis of 2008 included an overheated real estate market, fueled by…

A: Financial Statement: It refers to the reports prepared by the company at the end of the financial…

Q: In the run-up to the 2007 – 2009 financial crises, all of these key trends undermined the health of…

A: Correct Answer is D - Banks failing to distribute securitized risk. this is exactly opposite to what…

Q: What are the implications of excess liquidity for the stability of the financial sector?

A: Financial system is defined as the range of the stability, when it used to dissipate the financial…

Q: Explain liquidity risk and how it can affect financial institutions, and discuss the framework used…

A: Liquidity risk: It is the risk of having losses by not meeting its payment obligations in a timely…

Q: 2007– 2009 financial crisis? - what is shadow banking - advantages and disadvantages of shadow…

A: the crisis of 2007 2008 was due to rising house prices leading to default in payment of house by the…

Q: What is a key function of credit-rating agencies? Docredit-rating agencies always provide reliable…

A: Credit rating is the rating on the basis of which the credibility of the borrower is assessed by…

Concept explainers

Global issues

While studying the global issues, it is important to read the following topics to get a better knowledge:

Question

Explain the problem of unknown risks for financial instruments in furthering the 2007-2009 financial crisis.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Discuss the 2007-2008 financial crisis and what impact it had on the financial markets. Who was impacted? What caused the crisis, and how can a future crisis be prevented?
Why is measuring interdependencies among assets' returns, or, volatilities, important in risk management? Discuss the concept of interdependencies and what implications interdependencies have during periods of financial crises (such as the 2007-09 financial crisis)
Regarding the 2007-09 Financial Crisis, answer the following questions: Was this a systemic or a nonsystemic crisis? Explain. How do these differ? Which of the following shocks played a role in the crisis: (a)Increased uncertainty (b)Increase in interest rates (c)Government fiscal problems (d)Balance sheet deterioration (e)Banking problems and panics
The financial crisis of 2008-2009 spawned the concept of "systemic risk." What is meant by this term? What is meant by the term "shadow banking"?
thorough explanation of the succesful and unsuccesful financial regulation that combat the 2008/9 crisis
why do many analysts believe that securitization and shadow banking were significant factors behind the recent financial crisis of 2008.
Discuss how Minsky’s instability hypothesis helps us understand the causes of financial crises.
You need to describe how the Fed responded to the financial crisis of 2007 - 2009 (including the unconventional policy approaches).
How did the Efficient Mark Hyoithese play a role in the financial crisis of 2008-2009?
Which failures in risk management systems have had catastrophic consequences in financial markets? Illustrate with examples
In the 2008 global financial crisis many banks faced both a liquidity shock and a solvency shock. Discuss the main causes of each of these shocks and explain how regulators and governments responded to the illiquidity/insolvency faced by banks.
describe and compare alternative ways to estimate the probability of company defaulting on its debt obligations. Explain the difference between real-world and risk-neutral estimates