Global Financial Crisis Analysis

Global Financial Crisis

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Types and Possible Causes of Global Financial Crisis...........................................................1
2. Conditions which contribute in repeating GFC again in the future........................................3
3. Impact of GFC on the economies of different countries.........................................................4
4. Reforms provided by IMF.......................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Global financial crisis (GFC) is the situation of economic difficulty which is faced by the
markets and consumers across world. It is initiated in July 2007 due to the loss of confidence of
US investors on high risk mortgages. This caused liquidity problems in front of banks. GFC has
become worst after the collapse of Lehman brothers in September, 2008. Due to the effect of
GFC, borrowers faced the situation of negative equity and unable to pay their loans. This had a
negative effect on the values of homes and land as well (Chaisty and Whitefield, 2012).
In the present report, possible causes of Global Financial Crisis, impact of GFC on
economies of different nations and measures provided by IMF to overcome from issues of GFC
are explained.
TASK
1. Types and Possible Causes of Global Financial Crisis
Global financial crisis is the situation which arises in July 2007 due to collapse of
financial market of US because of crisis started in subprime mortgage market. This happened
because of the loss of confidence of investors on transactions of banks. Another major reason
behind GFC is the mishap of Lehman Brothers due to excessive risk taking in providence of their
functions in 2008 (Global Financial Crisis. 2018.). It is the worst situation which is faced by
world after depression of 1930. This had a huge impact on the world's economy as due effect of
GFC, financial markets got disturbed which in turn affected the prices of assets. It created the
situation of insolvency among debtors and intermediaries as well as affected the capacity of
market in allocation of capital for different uses (Kapan and Minoiu, 2013).
It is said that the major reason from where financial crisis started in US is the inability of
borrowers to pay their loan amount. This happened because the value of homes dropped and the
borrowers found themselves with negative equity. This will result in the defaults by a large
number of borrowers in repayment of subprime mortgage loans. Banks and financial institutions
have left no option of recovery as the value of homes and land become worthless and faced the
situation of liquidity crisis.
The Financial Crisis which is faced by different economies of world are of different
types. All these different types of Financial Crisis are mentioned as below:
1