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FIN200 - Corporate Financial Management Assignment

   

Added on  2020-05-16

12 Pages3022 Words32 Views
FinanceEconomicsPolitical Science
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Running head: CORPORATE FINANCECorporate FinanceName of the Student:Name of the University:Authors Note:
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CORPORATE FINANCE1Table of ContentsIntroduction:...............................................................................................................................2Deliberating the causes, which led to the rise of financial crises:.............................................2Noticing whether second occurrence of GFC can be conducted in future:................................4Portraying the impact of GFC on Australia and other countries:...............................................6Depicting the proposed reforms used in controlling the financial crisis:...................................8Conclusion:................................................................................................................................8Reference and Bibliography:....................................................................................................10
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CORPORATE FINANCE2Introduction:The impact of financial crisis is mainly evaluated in the overall assessment, where indepth problems that was faced by countries and companies during the financial crisis isadequately depicted. In addition,performance of the companies during the financial crisis isevaluated and its impact on developed and developing countries also appraised.Theassessment also identifies possible causes for the rise of financial crisis during 2008.identifications eventually help understanding the problems and wrong decision taken by thegovernment. Lastly, adequate measures that was taken by governments all the world are alsodepicted, which would help in understanding its impact on actual economies. The impact offinancial crisis on the economic condition of Australia is also evaluated to understand theproblems faced by companies during the crisis.Deliberating the causes, which led to the rise of financial crises:The financial crisis was mainly conducted due to the manipulation delivered byFinancial Institutions and banks. There were many causes that led to the rise of financialcrisis, as governments was not able to control risk accumulation by banks. Relevant causesdepicted as follows, which result then the rise of financial crisis of 2008. Growing demand for subprime mortgages:After the regulations passed by US government regarding the fulfillment of Americandream, where loans are provided to individuals for their home. In addition, the redline areasmarked by banks were removed by the US government, which allowed them to take bankloans for the home. Additional financial institution such as Fannie Mae and Freddie Mac wasmainly introduced to convert mortgage and loans into mortgage bonds such as CDO andMBS. Many of these Financial Institutions was created to convert mortgage and loan into
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CORPORATE FINANCE3financial instruments, which could be traded in the secondary market. Due to the believe thatmortgage market will never decline or fall (Allayannis et al. 2017). These instruments werehandsomely traded all around the secondary market. However, Fannie Mae and Freddie Macused credit ratings to determine price of the bones, which were mainly manipulated and wasfound after the end of the financial crisis. These financial instruments directly allowed banksto accumulate more capital to continue with their operations and provide home loans toindividuals.Boost in interest rates:Relevant boost in interest rates before the financial crisis was an immediate Trigger,which instigated borrowers to default, due to non-availability of funds for repayment.Majority of the borrowers were not financially sound, which resulted in high default rate ofborrowers. Hence, it was assumed that borrowers were willing to default rather than payinstallment on the loan due to high interest rates. The change in interest rates conducted byFED directly impacted the overall payment amount of the borrowers. During the loanproviding us the interest rate laid down by fed was mainly at the levels of 1%, while beforethe financial crisis it was at 5.25%. This substantially increased finance cost of the borrowers,which was not comprehending with their actual income at the current moment (Amies et al.2017). This phenomenon raised the level of defaulters in mortgage bonds, which became junkand hampered financial stability of companies holding the financial instrument.Converting mortgages into security funds:Major cause behind the fall of US economy was mainly led by security funds such asMBS and CDOs, which were complicated enough to fool the investors. The security fundsformally created from mortgage bonds that was accumulated by banks for differentborrowers. banks providing loan services and accumulated mortgages after which these
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