A Mortgage-Backed Security Is a Debt Instrument Based on a Pool

A mortgage-backed security is a debt instrument based on a pool of mortgages, and payment of that debt depends on the mortgages in the pool being paid. Many European banks invested in mortgage-backed securities. What was the effect of the financial crisis that began in the U.S. on these European banks?

A) Since most of the mortgages in these mortgage pools were guaranteed by agencies of the U.S.government, these European banks did not suffer unexpected losses.
B) When the mortgages in the pools were not paid, the mortgage-backed securities lost value or became worthless and these European banks suffered significant losses.
C) These European banks might have suffered significant losses but the European central Bank bought the securities at face value.
D) These European banks hedged their investment in U.S.mortgage-backed securities with investments in European mortgage-backed securities, so losses on U.S.mortgage-backed securities were offset by gains on European mortgage-backed securities.

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