StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Impact of financial crysis into international economy - Essay Example

Cite this document
Summary
Number: Date: Impact of Financial Crisis into International Economy The rapid globalization and industrialization growth have resulted to an increase in volatility in financial markets. As a result, mammoth crises both at the multinational and national levels have occurred culminating to fallen stock markets, collapse of large financial institutions and sell-out of large financial institutions…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.3% of users find it useful
Impact of financial crysis into international economy
Read Text Preview

Extract of sample "Impact of financial crysis into international economy"

Download file to see previous pages

In addition, there is a global credit crunch that has paralyzed economic development in the third world countries as well as slowing down the economic growth rates of the developed countries. Furthermore, both the first and third world countries have reported an increase in the rate of unemployment and poverty. There has also been a nosedive in exports, investment and asset markets (Healy and Palepu 13). Therefore, with the aim of studying the impact of financial crisis into international economy this article will outline its causes, consequences and the impact of the credit crunch.

CAUSES OF THE GLOBAL FINANCIAL CRISIS (GFC) According to most economists, the current economic crunch is the worst kind of financial crisis that the world has faced so far since the Great Depression of the 1930s (BWND ch. 1).. The root cause of the credit crunch is related to the development of the US housing bubble that rapidly occurred between 2005 and 2006. This resulted to an increase in the number of default rates of the adjustable rate mortgages (ARM) and subprime (Calomiris 6-52). This is because the banking institutions were willing and readily gave out loans to investors to purchase real estate property.

Investors were encouraged to apply for high loans believing that they would settle them within a short time (BWND ch. 3). Investors applied for loans with ignorance of the interest rates. In fact, investors could easily access a plethora of loans including credit card, mortgage and auto which lured them to apply for the loans without considering the unprecedented load that would be caused by the debt. There were also a myriad of financial agreements including collateralized debt obligations (CDO) and mortgage-backed securities (MBS) which stipulated a more friendly strategy for settling the debt (Salmon ch. 5). This was a marketing strategy that encouraged investors from all over the world to venture in the US housing market.

Moreover, the US federal bureau had monitored the interest rates since 1982 to ensure they were steadily decreasing. The easy access to foreign funds encouraged investors to undertake the loans for fuelling the housing construction projects (Healy and Palepu 13). Come the year 2007, interest rates increased with an outrageous margin resulting to a decrease in the housing prices. Conversely, most investors were adversely affected since raising money became increasingly difficult. Within a short time there was an increase in the number of foreclosed real estate properties.

Also most of the global financial institutions that had invested heavily on the financial agreements incurred huge losses. This led to the erosion of financial strength for banking institutions. As a result there was a worldwide drain of wealth which led to an increase in poverty levels. In addition, there were an increased number of loan defaulters and not only in the housing sector but also in other economic sectors resulting to unbearable losses that cost the globe trillions of dollars (Calomiris 6-52).

Another factor that resulted to the growth of the credit crunch is the financialization process. The US credit and housing bubble rapidly expanded the international financial stability until it became fragile and susceptible to a wide array of risks. This is because financial institu

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Impact of financial crysis into international economy Essay”, n.d.)
Retrieved from https://studentshare.org/environmental-studies/1422286-impact-of-financial-crysis-into-international
(Impact of Financial Crysis into International Economy Essay)
https://studentshare.org/environmental-studies/1422286-impact-of-financial-crysis-into-international.
“Impact of Financial Crysis into International Economy Essay”, n.d. https://studentshare.org/environmental-studies/1422286-impact-of-financial-crysis-into-international.
  • Cited: 0 times

CHECK THESE SAMPLES OF Impact of financial crysis into international economy

Globalization and Internation Financial Crisis

? Discussion The degree of change brought about by the globalization of financial systems has been termed as financial globalization by several researchers.... Globalization of financial systems leads to the creation of a regional market integration of external financing.... ?According to Mishkin (2009), the financial aspect of globalization has three dimensions: geographical aspect of financial globalization refers to mobility of capital from one country to another, functional aspect of globalization relates to capital markets which are compartmentalized through shifts in money markets and stock markets....
7 Pages (1750 words) Essay

The impact of the economic crisis in the Saudi economy

The project deals with the impact of economic crisis in Saudi Arabia.... The economy of Saudi Arabia is based on its rich amount of oil reserves.... Oil is the main resource of the economy.... The economy of Saudi Arabia was initially dependent on agricultural with the work of agriculture one by the nomadic people who lived in the country.... According to World Bank, Saudi Arabia's economy has been referred to as the strongest economy among the Arab nations....
40 Pages (10000 words) Dissertation

How the Global Finacial Crisis impacted Egypt

The implication is that the economy was impacted in a complex manner, with the nation being exposed to true economic shocks and the government remaining relatively protected in terms of financial shocks.... Instead, banks had been consolidated into larger corporations with restructured management as the government did away with toxic debts, reducing the impact of the crisis on the sector, while the economy's growth rate and the stock market suffered the most....
4 Pages (1000 words) Term Paper

Economic Crisis and Consumer Financing

This dissertation examines various assertions about the ways in which financial crisis affects the economic system as a whole, and discuss about the claims and misconceptions associated with it.... Traditional assessments of the economic crisis centralize their evaluation on interest rate spreads and hence, it can be argued that such investigations may lead to erroneous conclusions regarding the actual cost of borrowing, thereby, investigation about the fact that, throughout the financial crises, changes in the decrees of nominal interest rates tend to result in appreciable conclusions and inferences regarding the changes in the actual prices of loans....
16 Pages (4000 words) Essay

East Asian Financial Crisis

The paper provides a review of past researches made on the area and tries to encompass the causes as well as the impact of the East Asian financial crisis of 1997-98.... On the other hand, the impact of the East Asian crisis by the end of the millennium was more brutal or burgeoned due to a close-knitted financial relationship already been accomplished between them.... Its far-fetched effect could be compared with nothing less than that of the Great Depression of 1930s which had entwined the US economy into stagflation....
11 Pages (2750 words) Essay

The Impact of Economic Crisis on Sweden and Norway

nbsp;… This research will begin with the statement that economic crisis is a state in which the country's economy undergoes an abrupt downturn as a result of financial crisis.... The fundamental change of financial strategy was triggered by international interest rate hiking, succeeding the German reintegration and Riksbank's plan alteration to focus on inflation.... This research is being carried out to evaluate and present the impact of economic crisis on Sweden and Norway and how these nations are devising ways to fight such a state....
8 Pages (2000 words) Research Paper

Impact of Financial Crisis on UK Economy

The impact of the loan defaults was felt across the global financial system, as many of the mortgages had been bundled up and sold to banks and investors.... The result was a decline in the US economy accompanied by a sharp increase in unemployment.... The author of the assignment concludes that the financial tsunami in 2008, has caused nations and the UK to take a relook at their macroeconomic policies  and also drawn attention to the lack of adequate supervision and regulation  of the financial sector  … The whopping total cost of the crisis is equivalent to around a fifth of the entire globe's annual economic output and includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up so-called toxic assets, guarantees over debt and liquidity support from central banks   Banks which had lent money to them, could not recover their assets and their capacity to lend too dried up....
10 Pages (2500 words) Assignment

Impact of Economic and Financial Crisis in the Construction Industry in the UK

The author establishes the impact of economic and financial crisis in the United Kingdom's construction industry, the impact of the past economic and financial crises in the UK economy, and the level of activity of Balfour Beatty during a financial and economic crisis.... The study will also be focused on the effects of the 2007-2010 financial crisis with little mention of the effects of other financial crises if any.... nbsp; Without such information, the nation's construction industry may not be well prepared to face financial and economic crises if they ever occur in the future....
12 Pages (3000 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us