Assignment | Corporate Financial Management
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Added on 2020-05-28
Assignment | Corporate Financial Management
Added on 2020-05-28
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Running head: CORPORATE FINANCIAL MANAGEMENTCorporate Financial ManagementName of the StudentName of the UniversityAuthor Note
1CORPORATE FINANCIAL MANAGEMENTTable of ContentsIntroduction......................................................................................................................................2Discussion........................................................................................................................................2Major causes of financial crisis.......................................................................................................2Possibility of repetition of global financial crisis............................................................................4Impact of financial crisis on various countries and Nepal...............................................................5Impact on housing industry.............................................................................................................7Impact of GFC on share market.......................................................................................................8Reforms for reducing financial crisis..............................................................................................8Conclusion.......................................................................................................................................9Reference List................................................................................................................................10
2CORPORATE FINANCIAL MANAGEMENTIntroductionGlobal Financial Crisis (GFC, 2008-09) can be regarded as the worst disaster with respectto economy after the 1929 economic depression. The main cause for this crisis is that it leads tothe deregulation of financial industry. The evolvement of the great recession has resulted in theincrease in the level of unemployment and decrease in the overall price of real estates. The onsetof GFC had begun by 2007 as the crisis in liquidity led to the fall in the level of confidenceamong the US investors with respect to the mortgages of subprime values. It also got worse dueto the high level of volatility and the crash in the stock market on a global level in September of2008. It also triggered the collapse of the housing properties within the US market along with thedecrease in the flow of remittance by 6 percent in 2008-09 (Ojo 2016). IMF had stated that thedeveloping and the developed countries are all in the turmoil of financial crisis, which has led tothe fall in the output level on a global manner to 2.2 percent in 2009 (Attig et al. 2016). It canhowever be stated that Nepal did not get an impact of GFC in a direct manner but felt theconsequences in an indirect way. DiscussionMajor causes of financial crisisSaving on a global scale- One of the major reasons for the rise in the asset prices is thedeficit in the current account, which is prevailing in the US market and has resulted in saving theincome on a global manner. The attitude of the developing countries is that they are trying tosave up rather than investing in the capital market, which has result in saving in mass scale. The
3CORPORATE FINANCIAL MANAGEMENTcapital market of the advanced countries are in a search for investments, which has resulted inthe increasing the demand of the assets such as real estates and stocks in the US market. Housing prices- The decline in the price of the houses has created a major shock in thefinancial crisis on a global manner. The period 1996-2006 saw an increase in the housing prices,as the interest rates were low and there was pressurizing demand on the new economy. In themiddle of 2006 till February 2009, the price of houses began to decline and was the highest since1987 (Balakrishnan et al. 2016). This was due to the fact that the lending of the mortgages ismainly for the richer sections, as they do not have the burden of debts of huge mortgages. Figure 1: Bubble burst of price of houses(Source: imf.org 2018)Rising rate of interest and subprime lending- The price of the houses rose due to theincrease in the lax standards of the lower rate of interest and lending as well, as it was associatedwith the savings that were done in the economy. The increase in the interest rate has made theborrowing of the company costly (Dungey and Gahurel 2014). Moreover, the price of the houseshad a huge impact, as the rate of mortgage had a slow movement than the market rate that washigher.
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