HW check:Banking – the bare essentials (RB, p 26)1 bank account 12 goes bust2 cash 13 payments3 in 14 debit4 deposits 15 credit5 interest (rate) 16 transaction6 loans 17 financial services7 interest 18 foreign currency8 depositors 19 securities9 shortages 20 investments10 borrow 21 payment system11 central bank 22 cartels

23 regulators

HW check:→ MK, p 74, task 2charge i________ do b_______give a_______ issue b______issue s____ or s_____ make l_____offer a_____ offer s________pass l_____ pay i_______provide s_______ raise c______receive d______ share p______make l_____ make p_____ offer l_____pay a d_____ provide c____ provide l____

→ MK, p 74, task 2

charge interest do businessgive advice issue bondsissue stocks or shares make loansoffer advice offer servicespass laws pay interestprovide services raise capitalreceive deposits share profitsmake laws make profits offer loanspay a deposit provide capital provide loans

Crisis of CreditVocabulary focus

1 subprime borrowers A failure to repay a loan

2 credit rating B investment fund that combines safe & risky investments

3 default C clients who may not be able to repay their loans

4 hedge fund D assets you promise to give if you cannot repay a loan

5 security E estimates of people’s ability to fulfill their financial commitments

6 foreclose F to take possession of one’s property because they failed to

continue paying a loan

Vocabulary focus1 subprime borrowers C clients who may not be

able to repay their loans

2 credit rating E estimates of people’s credit standing ability to fulfill their credit worthiness financial commitments

3 default A failure to repay a loan

4 hedge fund B investment fund that combines safe & risky investments

5 security D assets you promise to give to the lender if you

cannot repay a loan

6 foreclose F to take possession of one’s property because they failed to continue paying a loan

SUBPRIME MELTDOWN (www.investopedia.com) ANTICIPATE THE ANSWER TO THE QUESTION AT

THE END OF THE SENTENCE.

• Following the tech bubble and the events of September 11, the Federal Reserve stimulated a struggling economy …HOW?

• ..by cutting interest rates to historically low levels. WHAT WAS THE RESULT ON THE HOUSING MARKET?

• As a result, a housing bull market was created. People with poor credit got in on the action when mortgage lenders created non-traditional mortgages.

• Eventually, interest rates climbed back up… WHAT WAS THE CONSEQUENCE FOR BORROWERS?

• …and many subprime borrowers defaulted when their mortgages were reset to much higher monthly payments.

• This left mortgage lenders with property that was worth …HOW MUCH?

• …less than the loan value …DUE TO WHAT?

• …due to a weakening housing market.

• Defaults increased; the problem snowballed, and several lenders …WHAT HAPPENED TO THEM?

• …went bankrupt.

• Investors and hedge funds also suffered because lenders sold mortgages they originated into …WHICH MARKET?

• …the secondary market. • Here the mortgages were bundled together and sold to

investors as collateralized debt obligations (CDOs) and other mortgage-backed securities (MBSs). When the higher risk underlying mortgages started to default, WHAT WERE INVESTORS AND HEDGE FUNDS LEFT WITH?

• …investors were left with properties that were quickly losing value. 

• In the wake of the meltdown, …WHAT DID CENTRAL BANKS DO?

• …central banks released liquidity into the market place, which allowed struggling lenders and hedge funds to continue operations and make the necessary payments on their obligations.

WHICH WORD IS MISSING?

Subprime meltdown is a financial crisis that ______ in the mortgage market after a sharp ________ in mortgage foreclosures, mainly subprime, collapsed numerous __________ lenders and hedge funds.

The meltdown spilled over into the global credit market as ________ premiums increased rapidly and capital liquidity was _________. The sharp increase in foreclosures and the problems in the mortgage market were largely blamed on loose lending practices, _______ interest rates, a housing __________ and excessive risk taking by ________ and investors.

WHICH WORD IS MISSING?

Subprime meltdown is a financial crisis that arose in the mortgage market after a sharp increase in mortgage foreclosures, mainly subprime, collapsed numerous mortgage lenders and hedge funds.

The meltdown spilled over into the global credit market as risk premiums increased rapidly and capital liquidity was reduced. The sharp increase in foreclosures and the problems in the mortgage market were largely blamed on loose lending practices, low interest rates, a housing bubble and excessive risk taking by lenders and investors. http://www.investopedia.com/terms/s/subprime-meltdown.asp

HW: MK, p 75: The subprime crisis and the credit crunchReading and exercises

MICROFINANCE

- providing financial services to low-income clients

Is that a good idea in your opinion?

Have you heard of some specific examples?

→ MK, p 76 Listening

Answer the questions.