Question

How can an investment bank experience a​ "run"?

Because investment banks borrow

a.short term in the repo​ market, the refusal of lenders to renew their repos is akin to a commercial​ bank's depositors withdrawing funds.

b. short term from commercial​ banks, they will experience a​ "run" whenever commercial banks do.

c. from the U.S.​ Treasury, a​ "run" can happen to an investment bank if the Treasury allows expenditures to exceed tax revenues.

d. long term from a variety of​ lenders, they cannot experience a​ "run."

What effects did the run on Lehman Brothers have on the U.S.​ economy? ​(Check all that apply.​)

- The failure of Lehman Brothers marked a turning point in the crisis.

- Large firms had difficulty arranging for even​ short-term loans, while small firms were able to escape this difficulty.

-. The failure of Lehman Brothers had no effect on the U.S. economy.

- Many parts of the financial system became​ frozen, as trading in securitized loans largely stopped.

Answer 1

1) Solution: Option-1

Explanation: The investment bank faces a "run" when in the repo market it borrow short term and experiences the lenders refusal on renew of their repos

2) Solution: Option-1&4        

Explanation: Solution: The failure of Lehman Brothers leads to a turning point in the financial crisis. Also the financial system got frozen because the trading in securitized loans was stopped largely.