Financial Crisis: A Detailed Analysis of Causes and Avoidance

This report provides a comprehensive analysis of the financial crisis, focusing on its causes and potential preventative measures. The introduction highlights the 2008 financial crisis as a significant economic catastrophe, tracing it back to a sequence of events rather than a single incident. The report addresses the question of whether the financial crisis could have been avoided, examining the responses of global authorities, the impact on international trade, and the role of macroeconomic forces. It also delves into the causes of the crisis, including the role of financial institutions, investment strategies, and the accumulation of unpayable obligations, leading to economic decline. The conclusion emphasizes the need for regular monitoring of global markets and the importance of international cooperation to mitigate future financial crises. The report references various books and journals to support its findings, offering a detailed overview of the subject matter.

FINANCIAL CRISIS

Table of Contents
INTRODUCTION...........................................................................................................................3
Q. 1 Could the financial crisis be avoided?.....................................................................................3
Answer:...................................................................................................................................3
Q. 2 Examine potential causes and assess whether they are inevitable...........................................5
1. Financial institutions made enough money:.......................................................................5
2. Invest on business activity:................................................................................................5
3. In the long run the obligations wound up noticeably unpayable........................................6
4. This brought on a money related emergency.....................................................................6
5. Bank decline to loan and therefore the economy experienced a great fall.........................6
CONCLUSIONS..............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
A financial emergency is a situation where the value of financial firms or resources get
down so fast. Financial emergency is related with a panic functioning on the financial
institutions, in which investors take their investment back from investment accounts with the
desire that value of financial institutions will drop if they stay at a financial institution
(Anonymous, 2010). The 2008 financial emergency was the most crucial bad monetary
catastrophe since the huge recession of 1929. This is not only happen due to any single action or
event but also, it was the consequence of a sequence of occasions.
Q. 1 Could the financial crisis be avoided?
Answer:
The financial markets collapsed in September, 2008 due to the bankruptcy of Lehman
brothers. The price of credit jumped, price of the equity declined, enhancing the cost of raising
new equity capital were the major side effects of 2008 financial crisis. The authority globally
reacted by providing significant liquidity to banks and central banks main rate were decreased. In
most of the nations, the authorities supplies extra-ordinary loans or took over to sustain
confidence in financial institutions and market practice. While some nations, the authorities have
buy shares to come down long term interest rates (Otter, D, & Wetherly, P,. 2008.). Stimulus
have also given via enhanced public sector demand and government budget deficits have come to
the new level in some countries.
The responds of households and various businesses was to enhance saving and private
sector demand reduced. Credit standards were tightly regulated and risk premium soared. The
drop in request quickly converted into a withdrawal in exchange and yield. In spring 2009, total
internation trade was about 20% beneath the level prevailing one year prior. In numerous
nations, the Gross domestic product declined more than a few back to back quarters. Nations that
were vigorously dependent on exports of produced merchandise were especially hard hit.
Unemployment has expanded strongly in nations. There are currently signs that the stimulus
measures are bring back to development, yet creation of manufactured is still lower than it was
before the emergency. The test going ahead will be to address the issue of rising unemployment
and high government obligation in numerous nations.

The macroeconomic forces which were prevented in the years paving the way to the
financial crisis were so strong. It is impossible that a nation alone could have stemmed the
fluctuations. China's involvement in global trade in products added a so many billion population
to the international manpower over a few years. This enhanced the space for sound, non-
inflationary international development. China was not prepare to change its capital markets
absolutely. Along with this, Chinese government was not ready to modify its currency to float
freely and the transformed standard rate against the US dollar was overviewed. This disabled an
important stabilizer and bring growing world trade improper characteristics. Long term interest
rate stayed so little irrespective of generous money related policies fixing in the United States of
America. Universal bodies like, the OECD, IMF and other global bodies noted time and also
developing irregular characteristics on the planet economy were a wellspring of concern. But,
economic choices are the privilege of national governments. Given the arrangement followed by
China, there were most likely points of confinement to what money related approach in Western
nations could actuality accomplish in terms of rolling back these powers. Expanded private
savings in the US and other deficit nations would most likely have required fiscal arrangement
fixing adequate to push up long term interest rates. On the other hand, a considerable increment
on the public savings would be essential (Grigor'ev and Salikhov, 2009). It is demanding to
follow such a strategy in perspective of the recommendation that a sudden situation may happen
in near future. The increased money associated to control would likely have limits the maturity
of the monitory emergency. Control and insurance have corresponding elements: as a rule a
yearly instalment has to be paid as somewhat lower improvement. This happens because the
capital does not have the access to flow freely to the most remarkable yielding transport.
Consequently, regulation can experience the development of monetary irregular characteristics.
This diminishes probability that a negative occasion will trigger a serious monetary emergency.
It is not compulsory that the insurance is ensured against all the sudden circumstances, as
the insurance premium sum will be too high. In any case, the business crisis demonstrated that
the anomaly after the crisis were not viable, and this could be diminished through administrative
changes. Dealing with a record and budgetary market control will be updated in Norway and
abroad. The City Panel on sparing cash Oversight and the business solidness Board, as instructed
by the G20, will soon issue indicate for fortify control of banks' capital and state administration.

In the UK, the regulatory authorities have formally drawn up new managing an account direction
control. A trademark consequence of the cash related crisis is that extended weight is given to
guaranteeing framework wide strength and not only the steadiness of individual banks.
Recommendations from the City Board of trustees and the FSB will be visit by political element
specialists that will grasp new run the show. In a world, there are limits to how far off a forlorn
country goes. Overall coordination is imperative for new controls to have the arranged effect.
This circumstance has opened a strategy making window for all the more firmly method for the
medium of trade structure, yet it is sketchy that up to what level it will stay open.
Q. 2 Examine potential causes and assess whether they are inevitable
A financial crisis is happened due to the availability of bank resources and banks used to
increase the prices of the houses and speculate on financial markets.
1. Financial institutions made enough money:
Whenever bank or financial institution creates a loan, a more cash is created. At the time
of monitory problems, banks take the advantages by making sum of new money through loans.
Because of this money, banks are able to increase the amount of cash and debts in the system
(Domitrovic, 2012). Due to this reason, every households get double the amount for what he/she
have invested during a certain period.
2. Invest on business activity:
Trillions of amount which financial institution have made in the past years went to firm's
external business the financial segment:
 Approximately 40% went to private property, which pushed up house costs quicker than
wages.
 A further few went into business real estate.
 Some amount went to the money related division, and the similar budgetary markets that
in the long run imploded amid the monetary emergency.
 Yet, only less than 10% of all the cash that banks made in this time went to organizations
outside the financial division.
A further some percent went into Visas and individual credits.

3. In the long run the obligations wound up noticeably unpayable
Premium ought to be paid on each one and with the obligation rising speedier than
income, eventually few individuals wind up perceptibly not able to bear on of repayments
(Jüttner and Maklan, 2011). Presently, they quit repaying their credits, and banks end up in risk
of going bankrupt.
4. This brought on a money related emergency
This procedure which made the cash related crisis. Straightforwardly after the crisis, banks
constrained their new loaning to associations and families(Shiller, 2012.).
5. Bank decline to loan and therefore the economy experienced a great fall
Borrowings from financial institution is given by the banks when they were certain that
they will be discount. So at the season of defeat of economy is doing gravely, banks need to limit
their loaning. (Buckley, 2011) The issue is that when money is used to repay credits, which
money is "devastated" and vanishes from the economy.
These are the means of rise of monetary emergency. What's more, these are have to examine
at normal interims keeping in mind the end goal to overcome from budgetary emergency.
CONCLUSION
From the above report, it has been found that the international bodies needs to regularly
keep monitoring on the global markets and detects if any components occurred of financial
crisis. This also has been observed that the world now untied almost many of the nations'
economy so there is a strong need to make the separate body who only look after the
international markets, and responds if deviation occurs.

REFERENCES
Books and Journals
Buckley, A. 2011. Financial Crisis: Causes, Context and Consequences. Harlow: Prentice Hall
Domitrovic, B. 2012. 'The Weak Dollar Caused the Recession. 'Forbes 189(8). pp.32
Grigor'ev, L and Salikhov, M. 2009. Financial Crisis 2008. Problems of Economic Transition.
(51). pp. 35-62.
Otter, D, & Wetherly, P. 2008. 'Chapter 9: Growth vs austerity: The macro economy in
globalizing world.' In the Business Environment. 2nd edition. Glasgow: Oxford
University Press.
Online
Anonymous. 2010. Vatican Economist: recession caused by low birth rate. Catholic Insight. [e-
journal].18(4). Available through: Anglia Ruskin University Library website
<http://libweb. Angila.ac.uk>. [Accessed on 17th May 2017].