Financial_Crisis

Financial crisis:- Financial crisis are those crisis which related to the economy of the country. In the scenario of financial crisis the value of assets going down gradually and the GDP’s of the country are going downward in negative zone. How financial crisis held' Financial crisis are held when the banks face the shortage of money. In this way investors sell of their assets and withdraw money from their accounts because they think the value of their assets will drop if they remain at financial institution. Global financial crisis:- Global financial crisis are those crisis in which the economies of the countries moving downward in destructive zone. The global financial crisis, mashing the world slowly but really begin to show, its effects in middle of 2007 and 2008. Stocks markets have collapsed, large financial institute have break down, and government in even the richest nation have had to come up with salvation packages to rescue the financial system. Causes of global of financial crisis:- Easy access to credit: The first cause of US housing market break down is easy access to credit. Falling interest rate Availability of mortgages Encouraged the consumer to buy home Relaxed lending standards:- The second cause is relaxed lending standard to cater acquire the large number of mortgage seekers. Money lender issued a large number of loans. Inadequate regulations:- They make regulations with poor transparency, full of ambiguity and greater risk factor. Interest on loans:- They provide interest on loans to those people who have less monthly income. The interest rates are normally 1, 3, 5 years which motivates people to buy home. Market collapse:- The property moves to boom with the oversupply of housing and prices which do not affirmed as longer. It started the self-destructive behavior that led to the crash of market. Impact of Global Economic Slowdown Impact on Stock Markets Globally:- World stock market has fallen down which make great impact to the investor to moving backward from the investment. Due to which company face losses day by day. E.g. DJIA (Dow Jones Industrial Average) fell below 10,000 mark (first time in four years) plunging more than 800 points in a single day in October. The fall was mirrored in stock markets, such as NASDAQ, NYSE, Nikkei 225, London's FTSE, Germany's DAX, etc. Losses to Investors:- Everybody (investment institution and individual investor) faces huge losses in MBS (Mortgaged Backed Securities) and related products. Example:- Banks alone are reported to have suffered USD 600 Bn of credit-related losses globally According to IMF (International Monetary Funds) estimates, American and European banks are predicted to loose USD 10 trillion of assets. Freeze in Inter Bank Credit:- Bankruptcy fueled anxiety in international banking market leading to block in interbank lending. Increasing Unemployment:- Unemployment increases due to the anxiety in international market. This trend is not only limited to financial sector exclusively. Example:- High number of layoffs was announced in the US through September 2008: 111,000 in financial sector, 95,000 in automotive sector, and 62,000 in transportation, 51,000 in retail, 28,000 in telecommunications and more in other sectors Bailouts:- Several salvation packages have been announced by government around the world to take an action on growing financial crisis. Salvation packages by the government of the country. 1. The US has announced a USD 700 Bn for salvation package for its banking sector. 2. Germany announced a salvation package of more than USD 200 Bn. 3. Britain gives more than USD 500 Bn for this financial crisis. Bibliography Amadeo, K. (n.d.). Subprime-Mortgage-Crisis-Cause. Retrieved april 23, 2011, from useconomy.about: http://useconomy.about.com/od/criticalssues/tp/Subprime-Mortgage-Crisis-Cause.htm research, g. (2008, november 19). Global-Financial-Crisis-2008. Retrieved april 23, 2011, from scribd: http://www.scribd.com/doc/11531128/Global-Financial-Crisis-2008 shah, a. (2010, december 11). global-financial-crisis. Retrieved april 23, 2011, from globalissues: http://www.globalissues.org/article/768/global-financial-crisis