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Derivatives
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derive (derives, deriving, derived): to obtain sg from sg else derivative: sg derived, dependent upon another thing
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Derivatives Main types of derivatives: futures, options, swaps Used for: hedging: protection against price changes (“insurance”) speculation: buying or selling assets, hoping to make a profit in the future (“betting”)
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The subprime ciris and the credit crunch MK, Unit 14
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Think about these questions while watching the video What is a mortgage? Why do institutional investors buy Treasury Bills? Why did the Chairman of the Fed decrease the interest rate to 1%? What was the result? Why was there an abundance of credit in the early 21st century. What is a down payment? Why was it good to buy a house on mortgage? Why do risky investments get a higher rate of return? Why didn’t lenders mind that some homeowners defaulted on their mortgages? Prime mortgage v. sub-prime mortgage? How did mass home foreclosures affect housing prices? And homeowners still paying their mortgage?
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Video – Watch this at home too!!! http://www.crisisofcredit.com/
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Find definitions in the text Subprime borrowers Securitization Credit crunch To write off a bad debt When banks realize that a debt will never be repaid and stop trying to collect it
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What are these? Find the corresponding term in the reading. (MK, p. 75) People who are unlikely to repay their loan. – subprime borrowers /people with a high risk of default A security, that an investor would buy because (s)he wants to get a regular income from people who are paying off the mortgage on their houses. – MBS and CDO When I bought my house, it was worth $300.000, house prices fell, it is now worth $90.000! – the debt is greater than the value of the house
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