UNIT 14

CHEQUEBOOK/CHECKBOOK
A CREDIT/DEBIT CARD
A MORTGAGE
AN OVERDRAFT
INVESTMENT ADVICE/FINANCIAL CONSULTANCY
INTERNET/TELEPHONE BANKING
BANKING PRODUCTS AND

SERVICES

12 – 5 – 2 – 10 – 4 –

7 – 9 – 13
RECEIVE DEPOSIT
MAKE LOANS
GIVE FINANCIAL ADVICE
RAISE CAPITAL
ISSUE SHARES
ARRANGE MERGERS

DOMINO RESULTS

PROFITS OR LOSSES

or second-chance lending
the term subprime refers to the credit quality

of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers

NEW TERMS

reduction in the general availability of loans (or credit) or

a sudden tightening of the conditions required to obtain a loan from the banks
An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers.

ÚVĚROVÝ STROP
ÚVĚROVÁ KONTRAKCE
ÚVĚROVÁ KRIZE

SECURITIES
THE IMPACT OF THE DECLINE IN THE VALUE OF SUBPRIME

SECURITIES

– CDO
mortgage backed securities –collateralized debt obligations
SECURITIZATION
Process of buying MBS

and CDO by financial institutions, grouping them and converted into securities offered then to investors

IMPACT OF THE DECLINE
Banks suffered losses, some went bankrupt
Necessity to

write off worthless subprime MBS → credit crunch

a company collapses, the bond holders are closest to the

front of the queue to have their investment paid back, while shareholders have to wait until later, when much of the cash may already have been paid out. However, the possibility of default is a key consideration for investors, and as a result a complex apparatus has been constructed to guide them as to the safety or otherwise of any particular bond. Credit-ratings agencies exist to rate government and corporate bonds based on the likehood of defaults. These ratings range from AAA, the best quality, to C. Typically, bonds rated BAA or above are regarded as a “investment grade” and those below are called “junk bonds”. In recompense for the higher risk of default, the junk bonds’ interest rates are usually far higher.

FROM AAA TO C RATING