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Insurance and Reinsurance Finance Assignment

   

Added on  2021-06-17

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Insurance and Reinsurance Finance

Significance of study caseThe study of financial crisis is very important as it helps in knowing about various risks. Thefinancial industry is the largest liquid market in the world that adds GDP of any country. Thebanking industry in the USA supports the largest economy of the world with concentration onprivate credit. The global financial collapse of 2007-2008 was considered as the worst financialcrisis since the Great Depression. It was a breakdown of trust and faith in the financial systemmainly caused by subprime lending and mortgaging. The government sponsored companies’encouraged subprime loans to low-income buyers. Increased lending, low interest rates promotedhomeownership which resulted in creating the housing bubble [CITATION Ant10 \l 1033 ]. Theprimary cause of financial crisis was deregulation in the financial industry which can beclassified as follows.LeverageExcessive leveraging was at the center of all banking crisis. Leverage went beyond balancesheets and the use of derivatives magnified the impact of downturnMarket riskThe banks incurred losses due to interest rate risk, equity risk, currency risk and commodity risk.Potential losses were incurred due to fluctuation in interest rates, stock price, internationalcurrency exchange rates and fluctuations in agriculture, industrial, metal, energy and gascommodities[CITATION KIM18 \l 1033 ].Liquidity riskDue to cash crunch, bank could not carry out day-to-day transactions. There was long lendingand short borrowing.Operational risk

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