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BAFB4134 FINANCIAL MARKETS AND INSTITUTIONS
To assess students learning outcome from:
- Analyze various tools adopted by Bank Negara of Malaysia in managing financial system.
- Evaluate the importance of financial markets and instruments and the impact to the economy.
- Evaluate various types of risk management measures in financial markets and institutions.
Question 19
Define the FOUR (4) factors contribute to the financial crisis.
Following are the factors:
1. Subprime Mortgages: One of the primary causes of the financial crisis was a surge in subprime mortgage lending, which allowed borrowers with poor credit histories to purchase homes they could not otherwise afford. When interest rates rose and home prices began to decline, these individuals were unable to make their payments and defaulted on their mortgages, leading to billions in losses for banks and investors. Factor That Contribute to The Financial Crisis Essay Example
2. Leverage: Financial institutions relied heavily on leverage during the lead up to the crisis, posing an increased risk for lenders since those institutions would not be able to cover all potential losses associated with any investments made using borrowed funds. This over-leveraging led many firms into bankruptcy when their investments failed or became worth less than what had been loaned out against them due to falling asset values.
3. Deregulation: A number of regulations that were put in place after The Great Depression were rolled back prior to The Great Recession as part of efforts by some governments around the world towards deregulation initiatives intended at boosting economic activity through reduced constraints on business operations and other activities such as banking sector consolidation moves initiated by major central banks including The U S Federal Reserve System . These changes had unintended consequences however resulting in excessive risk taking by certain segments within finance industry causing eventual collapse of global markets following liquidity crunches caused by unexpected losses incurred from non performing assets held across private banking books worldwide .
4. Greed: Many market participants saw short-term gains available through high levels of debt investment strategies aimed at quickly making large amounts of money while disregarding longer term risks associated with more conservative approaches such as holding cash reserves along side portfolios filled with highly leveraged securities backed up only thinly capitalized entities . Greedy traders ignored warnings signs indicating impending doom instead opting for maximum returns regardless how long lasting crash may have proved at end day bringing entire system down crashing waves across international waters leaving citizens dry land searching safety nets last ditch attempts save themselves families left behind damages done too late repair unless new generation steps change tide rising
In conclusion, it can be said that there are several factors that contributed significantly towards cause financial crisis ranging from subprime mortgages , leverage , deregulation , greed etc Factor That Contribute to The Financial Crisis Essay Example
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