Hai My dear friends,
Why cant we discuss about the U.S Subprime Mortgage which affected the entire global stock market and brought them to stand still. Since i dint find any discussion regarding this topic in this forum, it will be beneficial for others to know about this Hot topic...

From India , Bangalore
i really appreciate the topic of discussion which u rose.
i feel that loaners should try to hedge their interest rate risk. this can be done by swaping.

swaping is a derivative instrument, which hedges the risk - interest rate risk of those loaners who are not willing to take risk with those who are willing to take risk

this arises to those loaners who have given the interest on floating rate basis. basically swapping takes place at a fixed time period 6 months and at a benchmark say for LIBOR or T bills .


From India , Mumbai
Hai Swagata,
I accept whatever u said about Swaping of the Interest Rate Risk. But , i want to know what is the U.S Sub prime mortgage is all about and how it caused the global index to fall down...
I hope u understood the point

From India , Bangalore
Hello friends,

U have started a good topic for discussion i.e. U.S. Subprime Mortgage.

Before starting the discussion one must be familiar with the following questions:

1. What is sub prime?

2. Why it is a matter of discussion in U.S.?

3. How it affected the stock markets of rest of the world & why?

4. How the reduction in the rates by the federal bank of U.S. affected the stock market?etc.....

Now we will take all these questions one by one.


By the term sub prime we mean the lending rate in which a bank or an individual charges the interest rate higher than the prime lending rate.

For example:

In U.S. a person had earlier taken a loan by mortgaging his/her house to bank at the interest rate of say 11% pa. And again he/she is taking a loan from another bank on the interest rate higher than the previous one say 18% pa. also by mortgaging the same house. So, he/she has taken a double loan on the same house. So, the second bank will charge higher interest rate by assessing the credibility of the customer. So, it is the sub prime.

Now why it is the matter of discussion in U.S.?

This question is very interesting as well as very important, because due it the stock market of the rest of the world has been affected.

Now what happens when the banks are providing loans to the customer by mortgaging the same house. It affects the liquidity of the banks as the liquidity of the market. But is it the matter of discussion? No, it not the matter of discussion merely. The main reason was that the banks are using the Hedge Funds in order to increase their liquidity and the hedge funds came to be failure for the market as well as banks.

Now the rest of the questions will be answered in the later, due to lack of time.

Your friend


From United States ,
Subprime mortgages in US is a hot topic in financial market circles.
1. The subprime issue has impacted markets directly linked to subprime such as securitized products,equity of mortgage lenders,and indirctly corporate credit, leveraged buyouts,global equities.
2.Subprime mortgage is about mortgages granted to borrowers of less than stellar credit quality.
3. Poor credit quality is not the only complication in this market. A related complication is that lenders have created numerous innovations to make mortgages attainable for these borrowers.
For a detailed exposition you can go to http://www.riskmetrics.com where Christofer C Finger has an exceelent article titled A Subprimer on Risk

From India , Hyderabad

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