Explanation:
The collapse of the market for asset-backed commercial papers was the defining event of August 2007, marking the onset of the financial crisis. Prior to the crisis, large institutions frequently funded long-term investments through commercial papers, which are short-term loans, often unsecured. Many investors in securitized assets obtained their funding in this manner, using mortgages and other receivables as collateral. When a commercial paper matured, the borrowing institution would typically refinance it with another one, often by mobilizing repeat lenders. Conceptually, an asset-backed commercial paper program would experience a 'run' if
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Q.428 The financial crisis that began in 2007 had a significant impact on global markets. The month of August 2007 is often referred to as the first 'panic' month, marking the onset of the crisis. This period was characterized by a specific event that signaled the beginning of the crisis. Which of the following events best describes the event that characterized this "panic" month?
A
An unprecedented spike in firms declaring bankruptcy.
B
The sudden implosion of the market for asset-backed commercial papers.
C
A historic scale of federal bail-outs dispensed to prominent U.S. institutions.
D
A sudden, sharp contraction in the foreign exchange market.
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