Global Financial Crisis: Causes, Impact, and Reforms

Running head: CORPORATE FINANCIAL MANAGEMENT
Corporate Financial Management
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1CORPORATE FINANCIAL MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................2
Providing some other example of financial crisis events that affected the global financial market
worldwide:.......................................................................................................................................2
Discussing the possible causes of the financial crisis, while indicating whether the GFC can be
repeated again:.................................................................................................................................3
Explaining the scale and impact of the GFC in economies of different countries, while
identifying the actual or proposed reforms:.....................................................................................6
Conclusion:......................................................................................................................................9
References and Bibliography:........................................................................................................10

2CORPORATE FINANCIAL MANAGEMENT
Introduction:
Global financial crisis is considered a significance economic disaster, which shook the
financial sector of the world. The financial crisis augmented during 2007, which directly
impacted the subprime mortgage sector of USA. The financial crisis started with the high default
rates in the mortgage loan, which further escalated the problems for the financial market all over
the world. The analysis of the global financial crisis is being conducted, which directly highlights
the possible causes that led to the augmentation of the economic crisis. Further evaluation has
been conducted whether the financial crisis can be repeated again in future, which can directly
affect the operations of the financial market. Further evaluation is conducted on scale and impact
of the GFC on the economy of different countries, which halted the operations of their financial
sector. Lastly, evaluation on the actual actions and proposed plans for controlling the GFC is also
conducted.
Providing some other example of financial crisis events that affected the global financial
market worldwide:
The financial crisis of 2008 was led by the subprime mortgage crisis that started in US
due to the high level of defaults in the housing loan sector. The financial crisis was led by the
subprime mortgage catastrophe but other factors also coupled and contributed to the financial
crisis of 2008. The bankruptcy of the biggest financial service provider Lehman Brother is
considered to be one of the major events, which sealed the augmentation of the financial crisis
for the US government and the financial sector of the world. There were many indications and

3CORPORATE FINANCIAL MANAGEMENT
this portrayed the problems regarding the current financial sector of the country, which
negatively affect the financial sector of US (Choudhry, Hassan and Shabi 2015).
The major contributor to the Global Financial Crisis was the GATS agreement, which
allowed the financial sector of US to trade in global market and design different level of
derivatives and instruments that increased the liberation of the organisations. The agreement
allowed the financial sector companies to deal with other countries and provide them investment
options, which increased global trade and liberations. This led to the involvement of financial
and investment banks in the mortgage sector (Claessens and Van 2015).
Discussing the possible causes of the financial crisis, while indicating whether the GFC can
be repeated again:
The possible causes of the financial crisis are depicted as follows.
Imbalance in the world trade:
The main factors that contributed to the financial crisis of 2008 were the imbalance in
world trade, which occurred during 2001. This was the year when China joined the World Trade
Organization and produced cheap Exports to flood the Global Trade System. This shift in
manufacturing system mainly forced China to increase is exports all over the world while US
manufacturing started to reduce. The trade imbalance allowed China to increase the trade
surplus, while US trade deficit started to increase, as the manufacturing shifted from US to
China. The further evaluation of trade balance helps in detecting that the value increased from
the levels of $69 billion in 1999 to $256 billion in 2007. This increment in trade deficit of United
States directly contributed to the decline in its Industrial and consumer goods production system.