Chapter 8 Case Questions: Page 225 1. The case refers to the “classic trap of barrowing short and lending long.” Explain what this means. What are the advantages of borrowing short and lending long? What are the disadvantages? Answer: 2. Why did the sovereign wealth funds of Singapore, Abu Dhabi, and China choose to invest in UBS, Citigroup, and Morgan Stanley at a time when they were performing so poorly? Do these investments create any public policy issues? If so, what are they? Answer: 3. What happens to an economy when a housing bubble bursts? Answer: 4. The change in mortgage lending standards in the United States created a global financial crisis. Do you think an international financial regulatory agency should be created to reduce the likelihood that such crises will arise in the future? Why or why not?