logo

FIN200 Corporate Financial Assignment | Accounting Assignment

   

Added on  2020-05-28

13 Pages2714 Words79 Views
Running head: CORPORATE FINANCIAL ACCOUNTINGCorporate Financial AccountingName of the StudentName of the UniversityAuthor Note

1CORPORATE FINANCIAL ACCOUNTINGIntroductionThe Global Financial Crisis (GFC, 2008-2009) was considered to be the worst disasterwith respect to economy after the economic depression that took place in 1929. The main factorfor this crisis was due to the deregulation that happened in the financial industry, which also ledto the increase in the level of unemployment and the decrease in the prices of houses. The rise ofGFC started from 2007, as the liquidity crisis resulted in the confidence level to fall among theinvestors present in the United States in valuing the subprime mortgages. The financial crisisalso led to the high level of volatility and the crash that happened in the stock market in 2008September. It also influenced the decrease in the price of houses in the market and the flow ofremittance was 6 percent on a global manner during the period of 2008-2009 (Ojo 2016). TheInternational Monetary Fund (IMF) stated that the developed and the developing countries wasunder the financial crisis and the output level on a global basis was at only 2.2 percent in 2009(Attig et al. 2016). However, Nepal did not feel the impact of GFC in a direct way but hadseveral indirect impacts on the economy of the country. DiscussionPossible causesThe possible causes that led to GFC are as follows:Global saving- The major reason for the increase in the price of assets was due to the deficit thatwas present in the current account and the manner of saving globally in the US market. Thecountries that have a current account in a better way and the deficits in trade before the financialcrisis took place, were increasing their rate of savings, which led to the stop of foreign

2CORPORATE FINANCIAL ACCOUNTINGborrowings and did not become a lender to the United States. Most of the developing countriesincreased their capacity to save instead of purchasing in the capital market, which led to thereversal and increased the savings on a global manner. The capital market of the advancedcountries was searching for investments, which led to the increase in the price of the assets in theUnited States including the stock market and the housing properties. Price of houses- The decline in the price of houses substantially led to one of the primary shocksthat triggered the rise of the financial crisis on a global manner. The period 1996-2006 saw anincrease in the prices of housing properties, as the rate of interest was low that led to increasedpressure in the current economy. Between the year 2006 and the mid of February in 2009, theprice of the houses were decreasing and it was the highest after 1987 (Balakrishnan et al. 2016).This was due to the fact that the lending of mortgages was being directed towards the rich, asthey did not feel the burdens of debts on these large mortgages.Figure 1: Decline in price of houses (Source: imf.org 2018)Increased interest rate and subprime lending- The price of the houses increased more due to thelow rate of interest and the lax standards that was present in lending, which is associated with the

3CORPORATE FINANCIAL ACCOUNTINGsavings on a global manner. Most of the borrowers who took the loans were mostly the subprimelenders and the standards were not being met due to the credit worthiness that was very poor.The increase in fed rate of interest helped in making the borrowings more costly (Dungey andGajurel 2014). Moreover, the price of the houses faced a bad impact due to the rate of mortgagesthat were passing through a low to higher rates in the markets. Credit booms- The increase in the financial crisis happened due to the role of the expansion ofcredit. The access in the credit increased at a greater pace due to the boom that took place in themarket related to real estate in the countries like the United Kingdom, Iceland and otherEuropean countries along with the countries like Ireland and Spain. There were large fluctuationsin a cyclical manner in the economy due to increased growth of credit in the market. Theindebtedness related to the housing properties increased suddenly after 2000 although theaccelerated growth of credit was not that much that can reflect a slower growth in the rate ofcredit (Bauer and Thant 2015). The innovations related to financial activities, increased financingto the mortgages and the low rate of interest were some of the factors that contributed towardsthe factors of indebtedness related to housing properties. Possibility of repeating the financial crisisWith respect to the theory of business cycle, there is a high chance of the global financialcrisis to be repeated again in the market. It can be stated that the chance of financial crisis, whichmight lead to global financial system is lingering on the stage of expansion, which could lead theeconomy in to a further stage of depression.

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Assignment | Corporate Financial Management
|13
|2558
|132

Global Financial Crisis PDF
|14
|2798
|62

Study on Corporate Financial Management
|11
|2498
|47

Financial crisis 2008 causes and effects : Assignment
|14
|2893
|287

FIN200 Impact of Global Financial Crisis (GFC)
|13
|2652
|113

The Worldwide Financial Crisis
|12
|2711
|55