Question

In: Economics

a. What are CDO'S and how did they play a part in the mortgage collapse? b....

a. What are CDO'S and how did they play a part in the mortgage collapse?

b. What are crypto Currencies and how do they work?

Solutions

Expert Solution

A.) Collateralized debt obligations were created in 1987 by bankers at Drexel Burnham Lambert Inc. Within 10 years, the CDOs had become a major force in the so-called derivatives market, in which the value of a derivative is "derived" from the value of other assets. But unlike some fairly straightforward derivatives such as options, calls and credit default swaps,

Mortage crisis was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies and foreclosures and the devaluation of housing-related securities.It was financed with mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which initially offered higher interest rates Defaults were raised in the mortage market.COD were not able to.exchange or traded and mortage cannot be paid and this led to mortage crisis.

b.) A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.Cryptocurrencies are a type of digital currencies, alternative currencies and virtual currencies. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger.

It is an encrypted, decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining.

Crypto currencies like bitcoins are completely virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money.

Once you own them, they possess value and trade just as if they were nuggets of gold in your pocket. You can use your them he purchase goods and services online, or you can tuck them away and hope that their value increases over the years. Bitcoins are traded from one personal 'wallet' to another.

It is transferable and traded but it is virtual.

A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud.


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