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Global Financial Crisis in Corporate Finance

   

Added on  2020-05-28

10 Pages3110 Words84 Views
Running Head: Corporate Financial ManagementCorporate FinancialManagement

Corporate Financial Management 1ContentsIntroduction.................................................................................................................................................1Significance of the Global Financial Crisis....................................................................................................1Examples of financial crisis events...............................................................................................................2Chinese stock market turbulence....................................................................................................2Russian Financial crisis.....................................................................................................................2Causes of GFC..............................................................................................................................................3Possibilities of GFC to occur in future..........................................................................................................4Scale and impact of GFC in different countries............................................................................................5Australia..................................................................................................................................................5India.........................................................................................................................................................5Actual and proposed reforms for GFC.........................................................................................................5Conclusion...................................................................................................................................................6References...................................................................................................................................................6

Corporate Financial Management 2IntroductionThe objective of this task is to understand and evaluate the significance and causes of the globalfinancial crisis which occurred in the year 200-2008. The crisis badly impacted the economies ofmany countries worldwide. So, the below mentioned task explains about the GFC and its reformsand impacts worldwide. Significance of the Global Financial CrisisThe financial crisis which occurred in the year 2007-2008 laid an adverse impact on the state ofmany nations worldwide. The crisis happened in the year 2007 in the subprime mortgage marketof market of US. The market busted because many banks went in liquidation and collapsed.Economist says that it is regarded as one of the biggest issue of all times after the GreatDepression of 1930s (Davis 2018).Intake of excessive risks in the market led the outburst of thefinancial markets due to which all the other market were impacted worldwide. Some of the banksLehman Brothers etc. tried to take advantage of the market by providing maximum loans to thepeople for purchase of property due to which the subprime mortgage bubble busted affecting theproperty market as well. High degree of taking risk, high degree of complexity in the market, laxsupervision of governments, aggressive strategies of the banking system etc. activities combinedtogether to magnify the impact of global financial crisis (Dijkstra, Garcilazo, and McCann 2015).Further the main reason of this financial crisis was the combination of debt mortgage –backedassets with debts. Along with which the housing prices in the property market was risingcontinuously. The traders in the market were looking forward to expand the bond market due towhich they discovered the process of restructuring of US mortgages into bonds and sell them tothe investors so as increase the flow of income. Further through such investments the investoraimed to purchase the houses. The investment banks were then buying different mortgages fromthe issuers, pooling them together and restructuring them (Rey 2015). Then the banks wereselling these securities as a new product in the market naming collateralized debt obligation orCDOs. It is assumed that pooling of such different mortgages in the market reduces the risk onsecurities due to which the assets become safe and secure from the risk. But this theory workedin the opposite manner in this case as the major mortgages which were being securitized were of

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