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International Business BUS 430
1. Fannie Mae and Freddie Mac are GSEs. Define GSE with a brief explanation. (10%)
2. To slow the decline of market values of Fannie Mae, Freddie Mac, and 17 other financial firms, the Securities and Exchange Commission (SEC) suspended naked shorting for a short period.
a. What is a long position in a stock? (5%)
b. What is a short position in a stock? (5%)
c. What is a naked short position in a stock? (Distinguish between a short and a naked short.) (10%)
e. Who is permitted to naked short a stock (assuming there has been no suspension of this practice)? (5%)
3. a. Following the first SEC suspension of naked shorting (post–June 2008), did other nations follow this practice? (5%)
b. If not, explain why. If so, list a few. (5%)
4. When the temporary suspension of naked shorting was imposed by the SEC, stock prices increased, due to a “short squeeze.” Explain the term “short squeeze.” (10%)
5. The problems with Fannie Mae, Freddie Mac and other financial institutions were said to have been caused by the securitization of risky mortgages issued to uncreditworthy borrowers along with credit default swaps to insure these risky mortgages. The credit default swaps weren’t capitalized—there was nothing available to pay off on these credit default swaps, so when the borrower defaulted on the mortgage and the credit default swap was to be “cashed in,” there was nothing available and these securitized mortgages became worthless.
a. Worldwide, what’s the approximate value of credit default swaps in circulation during this period? (5%)
b. How did this amount compare to U.S. and worldwide gross domestic product (GDP) during this period? (5%)
6. a. In what currency is oil traded? (5%)
7. a. Will the U.S. dollar remain the currency of choice? (5%)
b. In what currency are credit default swaps traded? (5%)
b. Have any nations called for a switch from the U.S. dollar? (10%)