Derivatives and Risky Investments Trigger Crisis

Derivatives and Risky Investments Trigger Crisis

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Derivatives and Risky Investments Trigger Crisis

The financial crisis of 2008 was caused by a combination of factors, including the use of derivatives and risky investments by banks and other financial institutions. Derivatives are financial instruments that derive their value from the performance of an underlying asset, such as a stock or commodity. These instruments can be used for a variety of purposes, such as hedging against risk or speculating on future price movements.

However, when used improperly, derivatives can also amplify risk and contribute to financial instability. In the lead-up to the crisis, many banks and other financial institutions engaged in risky investment practices, such as buying and selling large amounts of derivatives based on subprime mortgages. These mortgages were given to borrowers with poor credit, and the value of the mortgages was highly dependent on the performance of the housing market.

When the housing market began to decline in 2007, the value of these derivatives also fell, causing many financial institutions to suffer significant losses. This led to a domino effect, with other financial institutions also suffering losses as they held derivatives tied to the subprime mortgages. As a result, many banks and other financial institutions faced bankruptcy, and the global financial system was pushed to the brink of collapse.

The crisis also had a significant impact on the global economy, leading to widespread job losses and economic downturns. Many countries, including the United States, implemented stimulus packages and other measures to try to revive their economies. Despite these efforts, the recovery has been slow and uneven, with many people still facing economic hardship.

The crisis also led to significant changes in the financial regulatory environment, with governments around the world implementing new rules and regulations to try to prevent a similar crisis from happening in the future. These changes include stricter oversight of financial institutions and the use of derivatives, as well as new rules for transparency and risk management.

In conclusion, the financial crisis of 2008 was caused by a combination of factors, including the use of derivatives and risky investments by banks and other financial institutions. These practices amplified risk and contributed to financial instability, leading to widespread economic hardship and significant changes in the financial regulatory environment. It is important for regulators and the financial industry to continue to monitor and address potential risks to prevent another crisis from occurring.

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Excellent Quality 95-100%	Introduction 45-41 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.		Literature Support 91-84  points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.			Methodology 58-53 points Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score 50-85%	40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.		83-76  points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.			52-49  points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality 0-45%	37-1 points The background and/or significance are missing. No search history information is provided.		75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.			48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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