The term financial innovation refers to the ongoing development of financial products designed to achieve particular client objectives, such as offsetting a particular risk exposure (such as the default of a borrower) or to assist with obtaining financing. Examples pertinent to this crisis included: the adjustable-rate mortgage; the bundling of subprime mortgages into mortgage-backed securities (MBS) or collateralized debt obligations (CDO) for sale to investors, a type of securitization; and a form of credit insurance called credit default swaps (CDS). The usage of these products expanded dramatically in the years leading up to the crisis. These products vary in complexity and the ease with which they can be valued on the books of financial institutions. COUNT 5
QSN1 What term refers to the ongoing development of financial products? ANS1 financial innovation QSN2 What is an example of financial innovation pertinent to the financial crisis? ANS2 adjustable-rate mortgage QSN3 What is the abbreviation for a form of credit insurance called credit default swaps? ANS3 CDS QSN4 What is the financial innovation that bundles subprime mortgages? ANS4 mortgage-backed securities (MBS) QSN5 What happened to the usage of financial innovation products in the years leading up the financial crisis? ANS5 expanded dramatically