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FIN200 Impact of Global Financial Crisis (GFC)

   

Added on  2020-05-28

13 Pages2652 Words113 Views
Running head: GLOBAL FINANCIAL CRISIS Global Financial CrisisName of the student:Name of the university:Author note

1GLOBAL FINANCIAL CRISISTable of ContentsIntroduction......................................................................................................................................2Discussion........................................................................................................................................2Probable causes of the financial crisis.........................................................................................2Difference in the impact of financial crisis on Nepal and other countries..................................5Impact of financial crisis on share market and the housing industry..........................................8Conclusion and recommendation....................................................................................................9Reference.......................................................................................................................................10

2GLOBAL FINANCIAL CRISISIntroductionGlobal financial crisis or the GFC refers to the most significant economic failure sincethe economic depression of 1929. The main cause identified for this financial disaster is thederegulation in the financial sector. Global financial crisis gave rise to the recessions whichfurther resulted in unemployment and depreciation of house prices. The outbreak of GFC isbelieved to have taken place back in the year 2007 as a result of the liquidity deficit. This inturn has been the outcome of the decreasing confidence of the investors in the US while puttingvalue in the subprime mortgages (Ojo 2016). The situation of the financial crisis became worse because of the high unpredictabilityand the downfall in the worldwide stock market in September 2008. At that point of time theGFC shot up due to the housing failure in the US market which gave rise to a worldwidedisruption of allowance flow from the year 2008-09 by 6%. Therefore it can be stated thataccording to the updated version of international monetary fund or IMF the finance of both thedeveloping and the developed countries was absorbed by the economic crisis which resulted inthe sinking of the worldwide output level to 2.2% in the year 2009. Nepal is a country which issupposed to have not been victim of direct impact of the GFC (Attig et al. 2016). DiscussionProbable causes of the financial crisis The list given below can be considered as the possible causes that might have led to theoccurrence of the global financial crisis-

3GLOBAL FINANCIAL CRISISGlobal saving glut- ongoing current account deficit in the US and the global saving glutcould be the primary reasons behind the excessive increase in price of the assets. Most of thecountries were facing moderate deficit in the current account and trade before the disaster tookplace but there was a substantial swell in saving and the external borrowings were lessened toprevent lending from the US. The countries which were on the verge of development startedsaving money instead of buying in the world market. This turnaround led to the production of theglobal saving glut. Whereas the countries which were already developed and advanced started tolook out for investment causing an increase demand which resulted in price enhancement of theassets in the US that not only included housing but also stock market (Balakrishnan et al. 2016). Prices of housing- A considerable fall in the prices of housing was another significantcause in the history of the global financial crisis. In the time period of 1996- 2006, the housingprices increased as the rate of interest was reduced and there was stress of the new economy. Inthe middle of 2006 and February 2009, there was reduction in the housing prices and it wasregarded as the foremost reduction from 1987. The decrease took place because mortgagelending was mostly aimed at the richer population and was not used to weigh down theincreasing burden of debt of the huge mortgage.

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