Interest rates are set at the national level, and the state of the economy is also national. Additionally, trends in investment flows (particularly into real estate) also proved to be national. As a result, the level of market risk remained high even when the level of asset-specific risk was reduced through the securitization process.
It is not inevitable that this had to happen this way. Banks, however, overinvested in the mortgage-backed securities, believing them to be safe. This reflected a lack of understanding of the true risks associated with mortgage markets, and in general the risks associated with the underlying assets of many MBSs. There are two reasons for this. Securitization created a false sense of security, that diversification would lead to these products having low risk levels. AAA ratings from ratings agencies confirmed this view, despite it being false.
The second reason is that the securitization process was complex. A simple form of securitization, such as a basic equity mutual fund, is easy to understand in terms of its underlying assets and therefore its risk. With mortgage-backed securities, the securitization process was complex and to some...
Foreign Exchange Rates One of the major complaints companies and individuals have with foreign exchange rates and flexible exchange rates is that they are too volatile because they float. Several factors contribute to the volatility of the rate of exchange. These include the balance of trade, currency substitution, the differential speed of adjustment of asset markets vs. goods markets, and the news. The balance of trade affects the exchange rate because
temporal and current method for assessing translational exposure. Translational exposure describes the risk that a company's assets, liabilities, income, or equities will change due to the exchange rate change results. This is a risk that has become more common in recent decades, as we have worked to deconstruct barriers to international trade. The translational exposure risk is usually as a result of a firm's denomination of their assets, liabilities, income,
In addition, a series of joint ventures in which West German steel firms joined with East German firms and Krupp, Klockner, and Thyssen of Germany was pursuing other developmental initiatives in eastern Europe as well. Likewise, Arbed of Luxemburg was involved in steelmaking facilities in the former East Germany. According to Mangum et al., "The rising market for improved galvanizing for automobiles, appliances, canning, and other uses is producing
Foreign Exchange There are price differences between the U.S. And UK sites for Toys 'r' Us. One example is the animated Talking Ben stuffed bear, which sells for $9.99 in the U.S. And £21.99 in the UK. The equivalent U.S. price in the UK should be £6.56, so there is a substantial price difference on this product. Consumers do not, however, have the right to demand equal prices. Each nation represents its
Foreign Currency Exchange Rates Currency is fiat money -- it's a coin or bank note that has value because the government says it does and as such becomes legal tender -- one is required to accept it to fulfill a debt. When the issue of currency leaves domestic grounds and becomes an issue of foreign exchange, things become really complicated. If a company wants to buy goods or services from
country can interfere in the foreign exchange markets. In many cases, the motivation for doing so lies with propping up exporters, by lowering the value of the domestic currency. While this is the most common reason for currency manipulation, it is not the only one. In some cases, currency manipulation aids in the cause of making debt disappear, lowering the value of that debt in order that it might
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