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The Impact of U.S Mortgages Crisis on the Saudi Financial Market - Dissertation Example
Finance & Accounting
Pages 47 (11797 words)
The subprime crisis was triggered by the subprime loans. The financial institutions issued subprime loans to customers with low credit worthiness at lower interest rate, as the mortgage rates were changed the customers started defaulting the loan payment as a result the financial institutions suffered heavy loss. …
The investors in US withdrawn money from the market and the US economy entered into a financial recession. Most of the countries which are related with the US economy also got affected by the US mortgage crisis. Countries who were exposed to the mortgage securities were the first one to get adversely affected like European countries were badly affected by the financial crisis as they were also involved in the mortgage securities. Most of the financial institutions across the world suffered because of their purchase of bonds which were supported by the risky home loans and collateralised debt obligation commonly known as CDO. Once the subprime crisis offset in USA, the investors who invested in these instruments incurred loss. More the investors lost trust in the financial instruments and hence the financial markets got affected by the crisis (New York Times, 2007). The default of the subprime loans caused a ripple effect which first hit the mortgage companies and the lenders which in turn affected the real estate sector as they were not able to sell the more houses as they use to sell during the boom of the subprime loans. Loss of the real estate sector in turn affected the US financial markets and the US economy. With the era of globalisation almost all the countries’ economy are related to one another because of the financial and trade ties. Hence most of the countries around the world felt the heat of the credit crunch of the US economy. But, the extent of the affect of US mortgage crisis is different to different countries. ...
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