resulted in the collapse of the housing market, failure of key businesses, and a decline in consumer wealth. The crisis was caused because of the widespread use of financial products such as Mortgage-backed securities (MBS) and Collateralized Debt Obligations (CDO) without accurate evaluation of the risk of the underlying mortgages they represented. As the “Giant Pool of Money” shows, one major bias exemplified by the individuals was “confirmation trap”. Credit rating agencies rated MBS as “AAA” implying
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Exam 1 1. The US beer industry was transformed significantly since 1980s. identify two important variables in this environment. Discuss the different strategy used by Anheuser-Busch’s and Samuel Adams? Change in environment: - Demand in US: 1980: 34.0 gallon/person, 2003: 29.1/person, 2010: 1.5% drop from 2009. - Technology allows production in very high quantity Anheuser-Busch: SAB-Miller and Molson Coors - High volume and standard quality - Economy of scale (production, marketing) - Commands
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dramatic expansion in the use of financial products leads up to the crisis. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps(CDS). These products vary in complexity and the ease with which they can be valued on the books of financial institutions. Another
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The financial crisis of 2008 rocked the global economy. As one major investment bank went bankrupt, other American financial services institutions were in poor health due to their own banking practices. However, these practices occurred due to the failure of government regulators. Ronald Reagan’s plan to stimulate the American economy in the wake of the 1980s recession led to sweeping deregulation in the financial services sector (Komai) (Inside). This deregulation and the failure to properly enforce
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DEFINITION OF SUBPRIME LOANS AND HOW THESE LOANS CREATE THE CRISIS The subprime mortgage crisis was a situation that led to the economic global crisis, which then also led to the recession that began in 2008. Subprime loans are type of loans that are granted to borrowers whose their credit history is not sufficient to get a conventional mortgage which means these loans are offered to people who may have difficulty in maintaining the repayment schedule of conventional loan. These loans offer interest-only
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1. Case 10.4 in the text discusses a situation where one employee observes another employee doing something contrary to company policy. Is this a situation where whistleblowing would be appropriate? Identify and apply 5 of the principles discussed in the text and in class with regard to when whistleblowing might be appropriate. a. From the company’s viewpoint having Weston live in a ‘slum’ violates their intentions for the monthly allowance. He did falsify documents he submitted to the company
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in the United States, for example, the US Financial Accounting Standard Boards (FASB) issued provisions in 2002 for accounting for environmental liabilities on assets being retired from service. The provision for accounting for assets retirement obligations required companies to reserve environmental liabilities related to the eventual retirement of an assets if its fair market value could be reasonable estimated. The intent of the ruling was disclosure, but the conditional nature of estimating of
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for each input into the fair value measurement and how these classifications affects classification in the fair value hierarchy of the entire instrument. We will answer these questions by each instrument separately: First, Collateralized Debt Obligation (CDO) Before September30th, 2010, FFC was in an active market, and it determined the fair value of the CDO by using a market-based valuation technique that relies on inputs such as quotes prices for similar CDO securities and requires only insignificant
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Role of Structured Credit Products in the Recent Financial Crisis Abstract In 2008, the world faced the most serious financial crisis since the Great Depression of 1930s. The collapse of the housing bubble and the increasing default rates on subprime mortgages in 2006 triggered liquidity constraints and the insolvency of firms which were priorly considered “too big to fail”, set off a domino effect across the US and global financial markets. Although it has been suggested that the causes of the
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Family Finance Co. (FFC), a publicly traded commercial bank, invests in a variety of securities in order to enhance returns greater than interest paid on bank deposits and other liabilities. The primary investments of FFC are collateralized debt obligation, mortgage-backed securities, auction-rate securities, equity securities in nonpublic companies, interest rate swaps, and a fuel swap for gasoline. FFC measures the derivative at fair value, presenting the portion of the fair value change by using
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