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Money & Capital Markets - Assignment Example

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This paper "Money & Capital Markets" discusses the dynamics of sub-prime lending – its causes and consequences in the U.S and in Asia and Australia are discussed in length to have a holistic approach towards the topic. The repercussions of U.S. subprime lending on world ARM have been discussed in this paper…
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Money & Capital Markets
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Download file to see previous pages The subprime lending crisis rocked the U.S. economy in late 2006 and early 2007. Subprime lending refers to the loans which are provided to the borrowers having less than ideal credit histories. In other words, subprime lending is provided to persons who do not qualify for conventional credits or loans.

The subprime loans gave rise to inflated credit facilities, increased availability of infrastructure and more circulation of more currency in the economy. But this system also gave rise to unprecedented meltdown, liquidation of funds and resultant heavy losses of financial institutions due to non-payment of loans by the borrowers.

The main reasons for the crisis are more than one. They are the failure of the borrower to clear loan due to either loss of a job or poor repayment capacity, wrong judgment on the part of the borrower or lender in involving in the deal of lending, fall of the prices of housing for which the loans were taken, steep rise in the adjustable-rate mortgages, etc. It was reported that by April 2008 the financial institutions incurred subprime loan-related losses to the tune of over the U.S. $210 billion.

As far as the Australian economy is concerned, the financial market situation underwent a thorough change for good. The commercial paper markets came to a standstill and the concept of subprime lending started to be seen as a forbidden ideology as the risk involved in lending took a toll on the health of the economy. The financial markets in Australia started to reprice the risk involved in subprime lending as the changes in the attitude towards risk were radical.

The 21st century is relatively young and yet it is old and rich in varied experiences as far as capital markets are concerned. The basic drive of any economy is to provide the people the basic needs such as food, shelter, education and services along with the infrastructure such as buildings and other overheads for the development of the economy. ...Download file to see next pagesRead More
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