...------------------------------------------------- Financial Instability: Beginning of the end: Markets all over the world fell into turmoil; a little more than £ 50 billion were wiped off of FTSE 100; S & P fell more than 20% when Lehman brothers filed for bankruptcy, throwing the future of banks in jeopardy and sending shock waves all over the globe. Plummet of this ‘too big to fail’ institution marked the beginning of financial instability gripping the world. It all started with Fed lowering the Federal Reserve fund 11 times in Dec 2011, in order to keep the recession blues away from US economy. Liquidity increased tremendously giving rise to easy credit availability and no income, no job, no assets borrowers. The demand touched sky-high and so is the real estate price. The Fed continued slashing interest rates to an extent of 1%, the lowest in 50 years. Subprime mortgages were the new gold-mine on the street. The restless Investment bankers created collateralized debt obligations (CDOs), the securitization of the mortgages. These asset backed securities soon found their presence in all kinds of funds. Though risky, these were labeled as AAA /A+ by credit rating agencies such as Moody’s and Standard and Poor’s. Ever loosening regulation and liquidity fuelled the creation of riskier real estate backed instruments. Hedge funds and insurance agencies jumped in this mayhem, insuring the CDOs. Banks were exposed to these mortgage backed securities. Hedge funds purchased...
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...Introduction Global financial crisis started when sub prime mortgage market of United States collapsed. Since the global financial crisis took place, many developed and developing countries have been going through recession. It was believed that ongoing global financial crisis will not affect Bangladesh economy as badly as it can to other developed economy because economy of Bangladesh is not so dependent on international capital or foreign investment. But, still there are and will be some shocks of ongoing global financial crisis available for Bangladesh economy. So, Bangladesh economy will be affected by global financial crisis. Global financial crisis might reduce overseas job opportunities and export earnings. Global financial crisis may turn into a recession. Economy of developing countries including Bangladesh is already going through recession. Bangladesh is a low income country. If global financial crisis continuous then economy of Bangladesh will be suffering. Negative impacts of global financial crisis are beginning to show on the increasingly globalizing economy of Bangladesh. Export growth rate of Bangladesh has turned negative. Export of non-apparels items is being reduced. Depreciation of currencies by competing countries caused erosion of Bangladesh’s competitive strength in the global market. Remittance earnings could be badly affected in near future because number of job seekers going abroad halved as some countries either revoked or have stopped issuing...
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...The Global Financial Crisis: Impact on Bangladesh A.K.M. Atiqur Rahman Professor Department of Economics North South University Overview I. Introduction: Genesis and Spread of the Crisis. II. Global Recession and LDCs III. Impact on Bangladesh IV. Recession and Export from Bangladesh V. Exchange Rate Movement VI. Remittance VII. Import and Tax Revenue VIII. Overall Impact IX. Policy Implications I. Introduction: Genesis and Spread of the Crisis. • Root: Mispricing in the Massive Credit Default Swap Market • Sub prime Mortgage: Bank transferred credit risk to third party through the process of securitization ( MDS, CDO) • Reckless growth of sub prime mortgage-lower yield in risky mortgage • Arbitrage drove the yields on all bonds & loans down • Expansion of consumer credit, housing price bubble Intriduction continued • Unsustainability of Credit default swap and subprime mortgages exposed • Housing bubble burst → mortgage default → foreclosures→ bank and insurance failure→ credit freeze • Spillover of financial crisis to real economy through virulent credit crunch →depressed aggregate demand • Sub prime mortgage default led to spillover effects around the world (Europe and emerging economies) via an elaborate network of derivatives Continued . Global consequence of the crisis includes: • Sharp rise in Unemployment in the US, Job loss in few other countries • Sharp fall in the stock market price around the globe, current...
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...GLOBAL FINANCIAL CRISIS The Global Financial Crisis is considered to be the worst financial crisis to hit the global economy since the Great Depression. Around the world, stock markets fell, financial institutes collapsed or were bought out, banks stopped business with each other and governments had to bail out their banks and financial institutions. This in turn caused lots of unemployment and collapse of the real estate market, contributing to failure of businesses and industries, decline in consumer wealth and a decline in economic activity leading to the Global Recession. The Financial Crisis may have showed some traces in 2007 but it really hit on 15th September 2008 when the United States Government allowed Lehman Brothers to go bankrupt, resulting in all banks deemed to be risky. The immediate cause of the crisis was the bursting of the United States housing bubble which had peaked in 2006.By September 2008, housing prices in the United States began to decline after hitting their peak in 2006.Easy credit and a belief that house prices would continue to appreciate had encouraged many subprime borrowers to obtain adjustable rate mortgages. These mortgages enticed borrowers with a below market interest rate for some time, followed by market interest rates for the remainder of the mortgage’s term. Borrowers who could not make higher payments once the initial grace period ended tried to refinance their mortgages. Refinancing became more difficult, once housing...
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...Mitch Abramson GOVT 123-01 Global Financial Crisis A collapse of the US sub-prime mortgage market and the bursting of the housing bubble in 2007 have had a ripple effect on the global economy. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. In turn lack of confidence in the economy has led to what is commonly referred to as the “great recession”. The question left to ask is, where do we go from here? The public is looking for an answer from economists to what will happen next. Because of the lack of certainty in the global forecasts, people are starting to lose confidence in the system. For example, in November 2008, the World Bank predicted the growth of the 2009 GDP to be 0.9%, while the International Monetary Fund predicted a 2.2% growth rate. In January 2009, the IMF revised its forecast to a 0.5% growth rate; two months later, the IMF revised its growth rate again by raising its forecast to 1%. Federal Reserve chairman, Ben Bernanke put it plainly in a speech given to the House Budget Committee by saying, “The uncertainty surrounding the outlook is unusually large.” Some economists have resorted to using three letters of the Roman alphabet to represent the future of the GDP growth. Those scenarios are the “U”, the “L”, and the “W” recovery. In a “U” style economy, economic growth will rapidly...
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...Positive and Negative Effects of the Global Financial Crisis Harlita H. Tomlinson Capella University BMGT8114: Accounting in the Global Era Dr. Wendy Achilles June 8,2014 Table of Contents Abstract 3 Positive and Negative Effects of the Global Financial Crisis 4 Background on the Global Financial Crisis 5 Global Financial Crisis and Its Negative Effects 9 Lack of Financial Sector Regulation and Oversights 9 Increase in the Number of Bankruptcies 11 Global Financial Crisis and Its Positive Effects 12 Designing Regulations to Monitor the Financial Sector 12 Global Governance as a Side Effect of the Global Financial Crisis 13 Lessons Learned 16 Domestic Lessons Learned 16 Global Lessons Learned 17 Lessons from Romania. 18 The Role of Financial Executives in GFC 19 Conclusions 21 References 24 Abstract The first financial crisis of the twenty-first century has not yet ended, according to Gorton and Metrick (2012), the wave of research on the crisis has already exceeded any single reader’s capacity, with the pace of new work only making this task harder. The Global Financial Crisis is considered by many economists to be the worst financial crisis since the Great Depression. Global Financial Crisis resulted in the threat of the total collapse of large financial institutions, the bailout of banks by national governments, and market downturns around the world. In the aftermath of this crisis, the housing market declined significantly and has not...
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...Global Financial Crisis: The 2007–2012 global financial crisis, also known as the Global Financial Crisis (GFC), late-2000s financial crisis or the second "Great Recession", is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a significant decline in economic activity, leading to a severeglobal economic recession in 2008.[2] The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.[3][4] The bursting of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[5][6] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[7] Governments and central banks responded with unprecedented fiscal stimulus...
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...Tutorial 2: What do you understand by the term Global Economic Crisis of 2008? Identify and explain some of the causes. Global Economic Crisis of 2008 was known as the biggest financial crisis after the Great Depression of 1930s. In September 2008, one of the most venerable and biggest investment bank, Lehman Brothers was forced to declare itself bankrupt, and the world’s largest insurance company, AIG collapsed. The financial collapses of these companies triggered the global economic crisis, with Asian stocks slammed by; stocks fell off a cliff and became the largest single point drop in history. These tragedies crushed the world’s economy and result in global recession. It costs the world tens of trillions of dollars, rendered 30 million people unemployed and doubled the national debt of the United States (Inside Job 2010). The effect of the crisis is the bursting of United States housing bubble in 2004 and it caused the values of securities tied to U.S. real estate pricing to fall dramatically. The complex interplay of policies encourages home ownership, thus; people in the United States had easier access to mortgages loans. As the availability of credit is higher, more residents in the United States began to “own properties” by borrowing money from the banks. Due to the housing and credit booms, financial agreements- mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which gained their value from mortgage payments and housing prices, greatly...
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...calculated by first identifying the bank’s liquid assets and then expressing this as a percentage of its total assets” (Gup et al., 2007, p.356). It only considers asset liquidity, and this measure is only one point in time. However, dynamic approach compares projected liquidity needs with projected available liquidity (from both asset and liability sources) for each time period. “This approach is superior to focusing on one or the other parts of the liquidity problem because it evaluates liquidity relative to bank needs” (Gup et al., 2007, p.356). APRA is proposing that banks in Australia hold more liquidity in the event of future crisis. The reason for this is “APRA noted that the financial crisis exposed the limitations of existing liquidity reporting rules when markets are under severe stress” (Baltazar, 2009, para.8). APRA (2009) said the financial crisis has highlighted the need for ADIs to have adequate levels of liquidity and robust liquidity risk management systems, and has provided considerable insights into better practice in this area. APRA supports the Basel Committee’s measures and agrees that greater international consistency in prudential regulation, promoted by the Leaders of the G20, will strengthen Australia’s prudential framework. Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. It is an important source of liquidity for banks. A typical example of securitization...
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...world observed what is being labeled the world financial crisis since the Great Depression of 1920-30. The initial indication of a severe financial melt-down appeared in October 9, 2007 when the Dow Jones Industrial Average set a record by closing at 14,047. One year later, the Dow was just above 8,000, after dropping 21% in the first nine days of October 2008. Major stock markets in other countries had plunged alongside the Dow. Credit markets were nearing paralysis. Companies began to lay off workers in droves and were forced to put off capital investments. Individual consumers were being denied loans for mortgages and college tuition. After the nine-day U.S. stock market plunge, the head of the International Monetary Fund (IMF) had some sobering words: “Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” It has been maintained that huge economy inequalities coupled with low rate of profit in the US economy contributed to an increased capital flow to the financial sector and the increasing provision of credit to US workers whose real incomes had declined. Under auspices of financial innovations, debt was sold in complex new financial products to investors. Cheap and apparently riskless lending drove the rising leverage of investments. ‘Securitization’ helped to spread the risks to global financial markets and deficient government regulation facilitated...
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...Survey of Science and Technology in Society Global Warming: Crisis or Conspiracy What is global warming? Or climate change for that matter? How did it start? How will it continue? What will happen to humanity? Will it one day be gone, due to our own ignorance? These are some of the questions raised by a percentage of the society who believe in the facts and evidences presented by the scientists and environmentalists. While the other part of the society seem divided over this issue, these groups of skeptic individuals, strongly deny the theory that global warming is a big issue and require urgent attention. Their beliefs are based on scientific facts too. So what’s right and who’s wrong? The debate doesn’t seem to stop. To begin with, Global warming is the continuing rise in the average temperature of the earth’s climate system, forcing it to change. Though change in climate is nothing new for the earth, according to the evidence and facts provided by the article “Global Climate Change” posted in NASA’s official website, the Earth's climate has changed throughout history. Just in the last 650,000 years there have been seven cycles of glacial advance and retreat. Most of these climate changes are attributed to very small variations in Earth’s orbit that change the amount of solar energy our planet receives. The current warming trend, however, is of particular significance because most of it is very likely human-induced and proceeding at a rate that is unprecedented in...
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...Global Financial Crisis Impact and Challenges Shaikh Faisal. Assistant Professor Dr. Rafiq Zakaria Campus Millennium Institute of Management Aurangabad Introduction: The global financial system has undergone a period of unprecedented turmoil. Market confidence dwindled and has remained fragile, leading to the collapse or near-collapse of large, and in some cases systemically important, financial institutions, and calling forth public intervention in the financial system on a scale not seen for decades. The financial system has been severely weakened by mounting losses on impaired and illiquid assets, uncertainty regarding the availability and cost of funding, and further deterioration of loan portfolios as global economic growth slows. Finding a purely private sector resolution of financial market strains has become increasingly difficult, while case-by-case intervention by authorities has not alleviated market concerns. In response, more comprehensive approaches are now being considered or implemented to bring about a more orderly process of deleveraging and to break the adverse feedback loop between the financial system and the global economy. Such a comprehensive approach—if well coordinated among countries—should be sufficient to restore confidence and the proper functioning of markets and avert a more protracted downturn in the global economy. Significant writedowns have already been realized, but more may lie ahead. . . The estimate of aggregate write downs...
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...What are the causes of the global financial crisis? Name: Course: Tutor: Date: What are the causes of the global financial crisis? Introduction Achieving stability has always been the number one priority in any county or organization. Financial stability is probably one of the most sort after achievement everywhere in the world. When a country or company fails to attaining financial stability then things are deemed to go wrong. The global financial crisis brought about the worst kind of financial instability in the global economy. It started in the United States and spread all over the world like wild fire. Even the top performing economies in Asia like China were not left out. This economic turbulence brought about both economic and social hardships (Helleiner,1994) . This was partly blamed on the already established Capitalist ideologies that prevailed especially in the United States. This crisis exposed most economies to financial difficulties as it proved the dependence of most nations on dollar denominated financial transactions. The only way to salvage these economies was through fiscal and monetary interventions by the Governments of the day. Bail-out packages were presented to major economy drivers and industries to help ease the financial crisis that had affected their operation. The collapsing of large financial institutions like the Lehman Brothers bank brought about a lot of chaos in the industry. Large bailout packages were used to help revive...
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...Impact of Global financial crisis On Pakistan By: Nauman Ayubi Butt Roll # 8511 Table of contents 1) Reason of choosing this topic 2) Introduction 3) The term ‘Financial Crises’ 4) Financial Crisis 2007-2009 5) Causes of the crisis 6) The crisis getting global 7) The Financial crisis and Pakistan: 8) Sectoral impact of the crisis in Pakistan: 9) External sector impact i) Exports ii) Imports 10) Financial Sector impact on i) Foreign exchange ii) Banking sector iii) Circular debt iv) Stock market: 11) Inflation 12) Economic business sector impact i) Impact on textile industry 13) Social Sector Impacts 14) Poverty and unemployment: 15) IMF 16) Technique to tackle the situation Reason for choosing this topic: The reason for choosing this topic is that it has a direct relationship with the poverty, unemployment, literacy, wealth distribution and also with the increased level of terrorism in Pakistan. Introduction: Capitalism is an economic system in which land labor production pricing and distribution are all determined by the market. There is a strong history of capitalism that it can shift from extended period of rapid growth to very short periods of contraction The global financial crisis in 2008-09 which are still on the go, they actually started from the 20th century and they have been increasing since then. In the end of 20th century the U.S housing prices after a multiyear started declining, the mortgage prices had been at...
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...Question 3: What can global firms do to reduce vulnerability to financial crisis? By definition, financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. (Wikipedia) It would become extremely harmful to global organizations. Some international firms suffer a great amount of loss or even go bankrupt during financial recession. Therefore, whenever there is a financial crisis, global companies have to execute certain initiatives in order to reduce vulnerability to financial crisis. During financial recession, there are mainly two kinds of crisis management: short-term and long-term orientations. The main purpose of short-term initiatives is to maximize year-to-year profit (or minimize loss), whereas long-term initiatives focus on the benefits of future gains and ignore short-term loss. (Kotabe, 2010) Therefore, short-term oriented solutions tend to satisfy stockholders’ immediate needs, while long-term orientation is more beneficial toward customers. (Vinay Couto, 2009) Among short-term initiatives, pull-out of the market, across-the-board cuts, layoffs, aggressive working capital management, and discretionary spend reductions are very common responses for financial crisis. In general, global companies could create significant outcomes within very short period with those short-term orientations. Therefore, most of global companies choose short-term responses to reduce vulnerability to...
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