EECS 1541 Lecture Notes - Lecture 30: Credit Risk
23 Jun 2018
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EECS 1541 Lecture 30 Notes
Introduction
International bond market
The credit crisis was triggered by the substantial defaults on subprime (lower quality)
mortgages.
This led to a halt in housing development, which reduced income, spending, and jobs.
Financial institutions holding the mortgages or securities representing the mortgages
experienced major losses.
Financial institutions in other countries, such as the United Kingdom, had also offered
subprime mortgage loans and also experienced high default rates.
Because of the global integration of financial markets, the problems in the U.S. and U.K.
financial markets spread to other markets.
Some financial institutions based in Asia and Europe was common purchasers of
subprime mortgages that were originated in the United States and United Kingdom.
Furthermore, the resulting weakness of the U.S. and European economies reduced their
demand for imports from other countries.
Thus the U.S. credit crisis blossomed into an international credit crisis and increased
concerns about credit risk in international markets.
Creditors reduced the amount of credit that they were willing to provide, and some
MNCs and government agencies were then no longer able to obtain funds in the
international credit market.
The international bond market facilitates the flow of funds between borrowers who
need long-term funds and investors who are willing to supply long-term funds.
Within a given country, local borrowers that issue bonds at a given time may pay
different yields.
Normally, the national government pays a lower yield than other corporations on bonds
issued within a country because bonds issued by the national government are perceived
Document Summary
The credit crisis was triggered by the substantial defaults on subprime (lower quality) mortgages. This led to a halt in housing development, which reduced income, spending, and jobs. Within a given country, local borrowers that issue bonds at a given time may pay different yields. A halt in housing development, which reduced income, spending, and jobs. Financial institutions holding the mortgages or securities representing the mortgages experienced major losses. Financial institutions in other countries, such as the united kingdom, had also offered subprime mortgage loans and also experienced high default rates. Because of the global integration of financial markets, the problems in the u. s. and u. k. financial markets spread to other markets. Some financial institutions based in asia and europe was common purchasers of subprime mortgages that were originated in the united states and united kingdom. Furthermore, the resulting weakness of the u. s. and european economies reduced their demand for imports from other countries.
