13. Global economic crisis Aa Aa One of the most discussed topics in finance rec

Question

13. Global economic crisis Aa Aa One of the most discussed topics in finance recently is the global economic crisis that is said to have begun in the 2000s. Your professor instructed your team to write an article for the college newspeper. Your friend has written the first draft of the article, which captures the essence of the gioball economic crisis. She has left some important points for you to review and has asked you to check the summary. Which statements belong in the summary? Check al that apply The Global Economic Crisis Summary Mortgage originators issued mortgages to home buyers and sold these mortgages to securitizing firms. These firms bundled these mortgages into pools and created securities that were backed by the mortgage payments. A portion of these pools were called tranches. Groups of tranches were further combined and then divided again into more complex securities called collateralized debt obligations (CDOs). These securities were redivided and recombined to create even more complex securities called CDOs-squared In the 2000s, specialized mortgage brokers were allowed to originate mortgage loans. Earlier mortgage loan originators were Savings & Loan associations (S&Ls) or banks Borrowers who met certain requirements for mortgages such as minimum income level relative to the total mortgage amount, could obtain mortgages, that were qualified to be secuntized. Such mortgages were called subprime, or Alt-A, mortgages From a borrower's perspective, adjustable-rate mortgages (ARMs) are considered riskier than traditional fixed-rate mortgages, because mortgage payments might increase without an increase in income. El Investors across the globe wiere buying ing This process had important implications: (1) The total risk embedded in the mortgages did not change; (2) since the risk was spread amonast several CDOs, it was difficult mortgage-backed securities for the rate of return that these seounties were generating. Most of these investors chose to be ignorant of the risks involved in such investments. Factors that caused the financial crisis Analysts and theorists have debated over the different factors that caused the subprime mortgage meltdown. According to your understanding of the crisis, which of the following factors led to the financial crisis? Check all that apply. Home buyers opted for traditional fixed-rate mortgages to avoid any payment delinquency Regulations were relaxed, leading to nonqualifying mortgages getting approved for loans. Real estate appraisers and rating agencies were lax Credit default swaps claimed to insure CDOs.

Explanation / Answer

Only the last paragraph describes summary of the passage.Because only this paragraph contains the gist of the article.

Factors that caused the financial crisis were Last 3, because home buyers had little role in the crisis.It is the duty of mortgage providers, credit agencies and financial institution to avoid such risky transactions.

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