The Impact of U.S Mortgages Crisis on the Saudi Financial Market - Dissertation Example

The investors in US withdrawn money from the market and the US economy entered into a financial recession.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. As per the CEO and MD of Citi Group Asia Pacific (Markets and Banking) the effect of the US financial crisis has been limited.

As per him the investors may concentrate more in emerging markets for long term growth (Rina Chandran, 2007). As per the chief economist of the World Bank for South Asia Shantayanan Devarajan, the countries in the South Asian region will not be adversely affected by the US mortgage crisis because the countries in that region are not much exposed to the mortgage securities of the US. More over the countries have enough liquidity available in their domestic markets (World Bank, 2011). There are also reports that the equity markets of the Arab countries faced very less impact of the US financial crisis.

The main reason behind the immunity of the Arab markets is cited as the major market players of the Arab financial markets have least expose to the global markets. More over it is also cited that the Arab banks have performed quite well in the past