Fianancial Market Senario

THE U.S. CRISIS AND ITS EFFECTS How it all started? Traditionally what was fol confuseded in the US market was owe lending through deposits which were made by the customers. The deposit proportionality in the banks was low. The banks would check the honorable mention history of the customer and their potential to repay the loans. Now, as the banks wanted to expand their market cope they came up with the concept of subprime lending in the early 2000s. Sub prime lending is the practice of reservation loans to borrowers who do not qualify for the best market please rates because of their deficient credit history. Subprime lending is risky for both(prenominal) lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with sub prime applicants. What went amiss(p) due to subprime lending can be explained with help of the pursuance diagram: Reasons for the US Subprime Crisis Low Financial Literacy The first divisor of the crisis is a blend of bad information, financial inexperience and improvidence of consumers/investors. They fell for the prospect of wankting a mortgage at rates never seen before and then extrapolating these rates surface for thirty old age.

This myopia was encouraged and indeed exploited by banks and other lenders eager to attract and retain clients. Financial literacy is low in the US. Only two protrude of three Americans atomic number 18 familiar with the law of compound interest; less than fractional know how to measure the effects of inflation on the cost of indebtedness. Financial literacy is particularly low among those who have taken out sub prime mortgages. The intermediaries exploited this financial illiteracy. Securitization The second gene is the pace of financial innovation during the last ten years and the securitization that it produced. Today it is easy to liquefy a portfolio of illiquid credits (typically a combination of bank loans or mortgages) so they... If you want to get a full essay, order it on our website: Ordercustompaper.com

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