Discount rate-Prime rate and the Subprime rates of interest
What is the difference among the discount rate, prime rate and the subprime rates of interest? Which interest rate in particular build the 2008 recession? Explain how that happened.
Expert
Discount rate refers to that interest rate which would be charged by the Federal bank to the depository institutions for borrowing its reserves. Prime rate refers to that which banks charge the creditworthy customers and is just 3 percentage points over fed funds rate. When the creditworthiness lowers, the interest rate increases. Subprime rates refer to those charged on subprime loans offered to the less creditworthy customers. Both prime and subprime rates are charged on all loans offered by banks and differs based on the creditworthiness of the customer. Subprime interest rates created the 2008 recession. Sales of single family homes peaked in 2005, with the increase in population as well as the need for home ownership, which resulted in a housing boom leading to rocketing home prices. As the prices surged upwards drastically, homes became more expensive and the subprime interest rates were also high. Subprime loans with adjustable rates, extremely low or no down payments, etc were offered and borrowed with the hope that they can be paid off when the prices escalate more. However, owing to fraudulent transactions, subprime mortgage defaults emerged, which led to the fall in home sales in 2006 which eventually led to the end of price escalation. With the prices much lower than the purchase price, more and more mortgage loans were defaulted, which led to the failure and shutdown of a few well-known banks. Thus this created the 2008 recession
Between 1961 and 2007, the rising share of the Canadian population in paid employment contributed to rising GDP per person. But suppose that the share of the Canadian population in paid employment had remained constant between 1961 and 2007. What would Canadian GDP pe
Examples of command economies are: a) the United States and Japan b) Sweden and Norway c) Mexico and Brazil d) Cuba and North Korea
Depreciation of a currency signifies fall in value of domestic currency in terms of foreign currency. Illustration: When value of rupee in terms of US dollars falls, state from Rs. 45 to Rs. 50 per dollar, it will be a condition of depreciation of Ind
Question: Was the stimulus package passed in 2009 as success? In answering this question the focus should be the articles on the syllabus, but you should also include opinions of other commentators. &nbs
The most probable of the following to be a poorer good for most American families who purchase some of each of such products throughout a given year would be: (i) Plastic surgery. (ii) College textbooks. (iii) Films on DVD. (iv) Cup-a-Noodles soup. (v) Downloads for t
How will you treat the given in estimating rational income of India? Provide reasons for your answer. (i) The value of bonus shares received by the shareholders of a company.(ii) Interest received on loan pro
In poor countries people spend a big percentage of their income so that APC and MPC are high. Yet, the value of multiplier is low. Explain why?
Differentiate between APC and MPC. The value of which of them can be greater than another and when? Answer: APC is the average
Reallocation of resources: In case, the market economy fails or does not attain the desired social objectives, the government has to interfere via budget and reallocate resources accordingly. Through its budgetary
How does an internally held public debt differ from an externally held public debt?
18,76,764
1924066 Asked
3,689
Active Tutors
1421567
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!