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GFC in Pakistan and Other Countries

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Added on  2020-05-16

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CORPORATE FINANCE 12 CORPORATE FINANCE CORPORATE FINANCE Name of the Student Name of the University Author’s Note Introduction 2 Discussion 2 Possible reasons of the GFC (Global financial crisis) 3 Examples of financial crisis events 4 Impact of GFC in Pakistan and several other nations 5 Identifying few proposed reforms that occurred during GFC 8 Possibility of GFC occurrence in future 9 Conclusion 10 References 11 Introduction The present report highlights on the cause and effect of GFC (

GFC in Pakistan and Other Countries

   Added on 2020-05-16

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Running head: CORPORATE FINANCECORPORATE FINANCEName of the StudentName of the UniversityAuthor’s Note
GFC in Pakistan and Other Countries_1
1CORPORATE FINANCETable of ContentsIntroduction......................................................................................................................................2Discussion........................................................................................................................................2Possible reasons of the GFC (Global financial crisis).................................................................3Examples of financial crisis events..............................................................................................4Impact of GFC in Pakistan and several other nations..................................................................5Identifying few proposed reforms that occurred during GFC.....................................................8Possibility of GFC occurrence in future......................................................................................9Conclusion.................................................................................................................................10References......................................................................................................................................11
GFC in Pakistan and Other Countries_2
2CORPORATE FINANCEIntroductionThe present report highlights on the cause and effect of GFC (global financial crisis) onseveral countries that occurred during the year 2008 and 2009. This paper also aims to providean overview about the examples of financial crisis events, identification of proposed reforms andpossibility of its occurrence in future. The GFC also referred to as financial crisis occurredduring the year 2008 and 2009 has been considered as worst crisis since occurrence of great thedepression event in the year 1929. It is one of the economic catastrophes, which adverselyaffected most of the nations in the globe. The GFC began in the last quarter of the year 2007with the housing bubble in US and this in turn led to subprime mortgage crisis, collapse ofseveral investment banks including Lehman Brothers (Berkmen et al. 2012). However, thepersons staying in this nation had huge fear of getting their money back and thus demanded theirmoney from these financial institutions and investment banks. As a result, these banks adoptedseveral measures in order to meet the demand of these people, which in turn led to liquidation ofthe holdings of financial asset by the banks. This event mainly worsened due to crash as well ashigh instability of the stock market. This crisis was then followed by downturn in economy ofseveral countries, which is also termed as Great recession. The policymakers of some of thecountries also changed their monetary as well as fiscal policies for restricting huge downfall oftheir global financial system (Frankel and Saravelos 2012). However, some developed nationssucceeded by adopting these policies while other developing economies and emerging marketsfailed to adopt these. This study also elucidates on the effect of GFC on Pakistan and othereconomies. The possibility of occurrence of this event is also analyzed in this report.
GFC in Pakistan and Other Countries_3
3CORPORATE FINANCEDiscussionPossible reasons of the GFC (Global financial crisis)The GFC is believed to have started in the year 2007 mainly due to three underlyingcauses that includes- deregulation of the financial industry, mismanagement of risk in businessand interest rate level. The crumple of real estate boom in this country also triggered to as theimportant cause of the GFC (Jarsulic 2012). This boom was usually developed on the borrowedmoney. However, the lenders of this nation were highly geared and hence decline in value of realestate pushed them into insolvency. In addition, these banks then strategized to engage in hedgefunding along with the derivatives, thereby demanded high mortgage rate for supporting sale ofprofitable derivatives. The four fundamental reasons that caused GFC are given as under –Housing bubble growth- The housing bubble increased by around 124% in the US during theperiod 1998-2006. The individuals who had raised their wealth were spending huge amount onincreasing stocks. This increase in stock wealth led to consumption boom to purchase betterresidence as they sought in buying new stock on housing. This rise in demand impacted ontriggering housing bubble as the supply of residence became relatively fixed (Barakova, Calemand Wachter 2014). This caused several residence owners to refinance at low interest rate orfinance their spending by taking the mortgages. However, this larger amount of money soughthigh yields with respect to that provided by the treasury bonds. This money was then connectedto the mortgage market by the investment banks. In 2003, the supply of mortgage exhausted,which in turn reduced lending standards. During the GFC, the prices of residence againdecreased by 20%, thereby the borrowers faced huge difficulty in refinancing high payments
GFC in Pakistan and Other Countries_4

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