Global Financial Crisis PDF
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Added on 2020-05-16
Global Financial Crisis PDF
Added on 2020-05-16
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Running head: GLOBAL FINANCIAL CRISISGlobal Financial CrisisName of the StudentName of the UniversityAuthor Note
1GLOBAL FINANCIAL CRISISTable of ContentsIntroduction......................................................................................................................................2Discussion........................................................................................................................................2Possible causes.................................................................................................................................2Possibility of repetition in financial crisis:......................................................................................4Impact of financial crisis on different counties...............................................................................5Impact of GFC on housing industry................................................................................................8Impact of GFC on share market.......................................................................................................8Reforms in reducing the financial crisis..........................................................................................9Conclusion.......................................................................................................................................9Reference List................................................................................................................................11
2GLOBAL FINANCIAL CRISISIntroductionGlobal Financial Crisis (GFC, 2008-09) was considered to be the worst disaster ineconomy after the economic depression that took place in 1929. The primary reason for suchcrisis was the attribution of the deregulation in the financial industry. It also led to the start ofmany recessions, which resulted in the rise in number of unemployment and the decrease in theprices of houses. The start of the GFC was said to be in 2007, as there was crisis in the liquidityratio and the confidence was also declining among the US investors in the mortgages that hadsubprime values. The crisis also became worse, as a result of the high volatility and in September2008 when there was a collapse in the stock market on a global basis. It also triggered thecollapse of housing properties in the US market and decreased the flow of remittance on a globalbasis in 2008-09 by 6 percent (Ojo 2016). It was seen that the update that was given byInternational Monetary Fund (IMF) regarding the economies of the developed and thedeveloping countries were encountering financial crisis and was shrinking at a value of 2.2percent by 2009 (Attig et al. 2016). However, Nepal did not have a direct impact for GFC butfaced the impacts in an indirect manner. DiscussionPossible causesSaving on a global manner- One of the primary reasons for the increase in the prices ofassets was the deficit in current account that was widespread in the US market and saving on aglobal scale. Most of the countries had a certain current account and deficits in their tradebusiness before the crisis, which led to the increase in their saving methods and borrowing from
3GLOBAL FINANCIAL CRISISthe foreign countries was stopped, as they become lender to the US market. Most of the countriesthat were developing were saving up their money instead of putting it in the capital market,which led to huge amounts being saved. Most of the advanced countries were searching forinvestments, which resulted in increasing the demand of assets in the US regarding the stockmarket and housing properties. Housing prices- There was a major decline in the price of houses, which led to the majorshocks in the economy and led to the rise in the global financial crisis. During the period of1996-2006, it was seen that there was an increase in the price of houses, as the rate of interestwas low and the new economy had demanding pressures. In between 2006 and 2009 of February,there was a huge decrease in the prices of houses since 1987 (Balakrishnan et al. 2016). This wasdue to the fact that the lending of the mortgages was targeted towards the rich section, which ledto the increase in the burden of debts. Figure 1: Bubble burst of housing price(Source: imf.org 2018)Rising rate of interest and subprime lending- The price of housing went on increasingdue to the lax standards of lending and the rate of interest, which was related to the saving of the
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