(1) Pledge is used when the lender (pledgee) takes actual possession of

assets (i.e. certificates, goods ). Such securities or goods are movable

securities. In this case the pledgee retains the possession of the goods until
the pledgor (i.e. borrower) repays the entire debt amount. In case there is
default by the borrower, the pledgee has a right to sell the goods in his
possession and adjust its proceeds towards the amount due (i.e. principal
and interest amount). Some examples of pledge are Gold /Jewellery Loans,
Advance against goods,/stock, Advances against National Saving
Certificates etc.

(2) Hypothecation is used for creating charge against the security of

movable assets, but here the possession of the security remains with the
borrower itself. Thus, in case of default by the borrower, the lender (i.e. to
whom the goods / security has been hypothecated) will have to first take
possession of the security and then sell the same. The best example of this
type of arrangement are Car Loans. In this case Car / Vehicle remains with
the borrower but the same is hypothecated to the bank / financer. In case
the borrower, defaults, banks take possession of the vehicle after giving
notice and then sell the same and credit the proceeds to the loan account.
Other examples of these hypothecation are loans against stock and debtors.
[Sometimes, borrowers cheat the banker by partly selling goods
hypothecated to bank and not keeping the desired amount of stock of
goods. In such cases, if bank feels that borrower is trying to cheat, then it
can convert hypothecation to pledge i.e. it takes over possession of the
goods and keeps the same under lock and key of the bank].

(3) Mortgage : is used for creating charge against immovable property

which includes land, buildings or anything that is attached to the earth or
permanently fastened to anything attached to the earth (However, it does
not include growing crops or grass as they can be easily detached from the
earth). The best example when mortage is created is when someone takes a
Housing Loan / Home Loan. In this case house is mortgaged in favour of
the bank / financer but remains in possession of the borrower, which he
uses for himself or even may give on rent.

Amortization usually refers to spreading an intangible asset's cost over that

asset's useful life. For example, a patent on a piece of medical equipment
usually has a life of 17 years. The cost involved with creating the medical
equipment is spread out over the life of the patent, with each portion being
recorded as an expense on the company's income statement.
Depreciation, on the other hand, refers to prorating a tangible asset's cost over
that asset's life. For example, an office building can be used for a number of
years before it becomes run down and is sold. The cost of the building is spread
out over the predicted life of the building, with a portion of the cost being
expensed each accounting year.
Depletion refers to the allocation of the cost of natural resources over time. For
example, an oil well has a finite life before all of the oil is pumped out.
Therefore, the oil well's setup costs are spread out over the predicted life of the
oil well.
Loan servicing is the process by which a company (mortgage bank, servicing firm, etc.) collects the
timely payment of interest and principal from borrowers. The level of service varies depending on the type
of loan and the terms negotiated between the firm and the investor seeking their services.
A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and
which performs other services in connection with mortgages and mortgage-backed securities. The
mortgage servicer may be the entity that originated the mortgage, or it may have purchased the mortgage
servicing rights from the original mortgage lender.[1] The duties of a mortgage servicer vary, but typically
include the acceptance and recording of mortgage payments; calculating variable interest rates on
adjustable rate loans; payment of taxes and insurance fromborrower escrow accounts; negotiations of

workouts and modifications of mortgage upon default; and conducting or supervising

the foreclosure process when necessary.[2]
A mutual fund is a type of professionally managed collective investment scheme that pools money from
many investors to purchase securities.[1] While there is no legal definition of the term "mutual fund", it is
most commonly applied only to those collective investment vehicles that are regulated and sold to the
general public.
A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest in different securities

Securitization is the financial practice of pooling various types of contractual debt, such as residential
mortgages, commercial mortgages, auto loans, or credit card debt obligations, and selling the pooled debt
as securities to investors. Cash collected from the underlying debt, including interest and proceeds from
the repayment of the debt, is paid to the investors in the securities.

Mortgage-backed securities are a perfect example of securitization. By

combining mortgages into one large pool, the issuer can divide the large pool
into smaller pieces based on each individual mortgage's inherent risk of default
and then sell those smaller pieces to investors.

eMi= P*r {(1+r)n/1+(rn-1)}

Suppose you have availed a loan of Rs. 10 lakh at 10 per cent interest per annum for a period of 20 years.
The EMI fixed would be Rs. 9,651.
In the first month, since the total loan is outstanding, the bank or HFC will charge interest of 10 per cent on
Rs. 10 lakh, which works out to Rs. 8,333.
Simple interest per annum = loan amount X interest rate/100
= 10,00,000 x 10/100 = 1,00,000
Interest per month = interest per annum /12
= 1,00,000/12 = 8,333.3333333
= 8,333 (rounded off)
In the first month, out of EMI amount of Rs. 9,651, the interest amount is Rs. 8,333 and balance amount of
Rs. 1,318 (Rs. 9,651 Rs. 8,333) is the principal loan amount. So, at the end of the month, the loan
amount outstanding would be Rs. 9,98,682 (10,00,000 1,318).
In the second month, the interest would be charged on outstanding loan of Rs. 9,98,682, which amounts to
Rs. 8,322.
The balance amount of Rs. 1,329 (Rs. 9,651 Rs. 8,322) will be deducted from Rs. 998,682 and at the end
of second month, the outstanding loan would reduce to Rs. 9,97,353 (9,98,682 1,329).
Th

The International Financial Crisis Started with Losses in the US Housing Market:

Inaccurate credit ratings

Lack of transparency and independence in financial modeling
Off-balance sheet financing
Regulatory avoidanc
The crisis originated in the housing market. In 2006 construction activity
decreased markedly as house prices started to decline. The real economy
slowed as households responded to the fall in house prices by increasing their
savings. Moreover, credit institutions started to tighten lending standards in late
2006 and this trend continued during the following years. However, this decline
in domestic demand was partially offset by a continued growth in exports.

Low inflation and low interest rates

Failure to address the financial cycle
System-wide risks underestimated
Credit rating agencies failed to evaluate risks
Government policies lowered credit control