Question

Shadow banks ________ borrow short-term funds that are not federally insured and use them for long-term investment, and therefore ________ to runs similar to those that occurred during the financial crisis.A) continue to; are vulnerable
B) continue to; are no longer vulnerable
C) no longer; are vulnerable
D) no longer; are no longer vulnerable

Answer 1

Answer:

A - Continue to/ Are vulnerable.

Explanation:

As the exercise says, Shadow banks (entities that exist outside the system) continue to borrow short-term funds that are not federally insured for long-term investment. This is what makes them vulterable to runs similar to those that occured during the financial crisis: after the subprime meltdown in 2009, the shadow banking activities came under an increased  scrutiny due to their role in the overextension of credit that, alongisde the systematic risk in the financial system, resulted in the financial crisis.