M3 the credit crisis

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Created by Judit Mendoza Aguilar

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The last financial crisis

The crisis of credit

The bursting of the Real State Bubble

Another visualized explanation

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About hedge funds

About subprime mortages

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1/5

Identify the main reasons of the last financial crisis orginated in US 2007

3 The appearance of defaults of the subprime mortgages in a risk scenario generated by the the abuse of securitization

2 A high exposure to real estate in a scenario of credit growth combined with toxic assets and the abuse of securitization

1 The appearance of defaults and the contagion of subprime mortgages in a low-risk scenario

right answer

3 It looks like a mutual fund (it buys stocks or bonds, charges fees to their investors, uses derivatives...) but its management is highly regulated by law due to the high risk

2 It is nothing like a mutual fund in terms of type, fees, investment style, and management. It is much riskier than funds and you cannot use derivatives

1 It looks like a mutual fund but its management is unregulated. It can invest aggressively in a wider variety of products. It can also use derivatives

2/5

What is a hedge fund?

right answer

3 Most hedge funds freely invested in Real Estate Market, according to different managerial investment strategies, causing the Real Estate Bubble to burst

2 The bursting of the Real State Bubble began with the bankruptcy of several hedge funds of the US investment bank Bear Stearns

1 The financial crisis spreads in Europe after the bankruptcy of the UK bank Northern Rock, specialized in Hedge Funds, giving rise to the rescue of different European countries

3/5

Select the right sentence explaning the relation between Hedge Fund and the last financial crisis

right answer

Northern Rock was not specialized in Hedge Finds but in mortages. Most hedge funds do not specifically invest in the Real Estate market

3 A mortgage loan with lower credit quality borrowers and typically higher interest rates and fees compared to prime mortgages to offset the increased risk

2 A financial weapon of mass destruction with a significant role in the U.S. housing market collapse

1 A loan whose borrower has high-worth assets, a sizeable bank account and a stable high paying job

What is a subprime mortage?

4/5

right answer

Many subprime borrowers (with lower credit scores and limited loan-to-value ratios) were unable to make their mortgage payments, leading to a wave of foreclosures and a broader financial crisis

3 Securitization, during the financial crisis, was a secret government project involving the minting of special 'crisis coins' to control the money supply

2 The last financial crisis was largely influenced by securitization, which is a process of turning assets into complex financial derivatives, leading to a cascade of defaults and market instability

1 Securitization is a financial process that involves pooling various types of debt and transforming them into marketable securities. It played a role in the financial crisis due to the abuse of securitization partly based on subprime mortgages

5/5

What is securitization and why did it affect the last financial crisis?

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