Jeanne Gwynneth C.

Hipolito
BSA 3A FM2acc

In 5-10 sentences, discuss how markets for different money market instruments were affected
by the global financial crisis of 2007-2008. (Convert your Word document to PDF file before
uploading).

The global financial crisis started with mortgages, those citizens who loan from banks to
acquire houses which pay a portion of the principal monthly plus interest, however, such
mortgages were sold by the banks like securities to investors which in turn they gain more.
Investors gambled more in this mortgage securities thinking that once homeowners pay in
default, they will get back the houses and sell it which they will get higher return on investment.
Since this strategy was to let debtors loan money beyond their abilities to pay, mortgages began
to default which causes the 2007-2008 global financial crisis. Big banks and financial institutions
declare bankruptcy and were forced to liquidate funds which in turn affected the whole economy
as billions of dollars were declared for losses causing the financial market in chaos. The
government then started to purchase federal funds to help banks liquidity causing the federal
rate reduced. Market rates started to decline, bonds and stocks are traded in relatively low prices,
the international market start to freeze money circulation to stop this crisis and stabilize the
market again. Loans and mortgages purchased by the government were then sold and despite
the losses declared during this global crisis the financial market overcome such chaos.