The Overrating of Mortgage-Backed Securities Prior to the Financial Crash

question 150

Multiple Choice

The overrating of mortgage-backed securities prior to the financial crash of 2007-2009 was generally attributed to:

• A) the fact that customers desiring the ratings paid for them.
• B) the fact that the sellers of the securities paid for the ratings.
• C) overzealousness in the securities market.
• D) the wave of foreclosures prior to and during the financial crash.

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Definitions:

Underpriced Products

Items sold at a price below their market value or cost of production, potentially leading to losses or reduced profit margins for the seller.

Absorption Cost

A method of costing that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Mark-Up Percentage

The percentage added to the cost of goods to cover overhead and profit.

Pricing Policy

A strategic approach adopted by a company to set the cost of its products or services, often considering factors like market demand, production costs, and competition.