Discuss the impactof law on business enviroment (add two real eamples at least) - Assignment Example

Download file to see previous pages The financial crisis that began in 2007 crippled many businesses and affected nearly the entire world. While financial crisis in the economy is inherent to a great extent, the current financial crisis began as a result of the state being unable to manage the risks associated with the wish to produce better yields. As the entire financial institution began to collapse with the bankruptcy of the Lehman Brothers, the government failed to take any preventive steps to control the situation. The steps that were taken were more reactive in nature and thus failed to be truly effective. According to an estimate by IMF, the total global financial loss suffered by the recent crisis amounts to 2.2 trillion US dollars1. In this paper, we attempt to understand how different countries over the world reacted to the financial crisis by implementing their own state regulations. These countries include USA, UK, Russia, Japan and China. The paper would work on a critical analysis of the regulation imposed and whether they brought about the desired impact. Reasons behind the Global Financial Crisis The Global Financial Crisis, that impacted the entire world, originated from the United States. The financial system within US backfired as a result of lack of risk management practices. The main contributor of the financial crisis was the subprime mortgage loans that were made available to the public without proper control and management. Mortgage companies were forced to relax their policies in order to increase their own shares in the market by increasing loans to the buyers. Also the Clinton government pushed for providing more loans to low and medium income families. As mortgage companies increased loans to buyers, they failed to ensure that the loans were given to deserving parties who would repay the loans on time. As mortgage companies failed to collect their loans, the number of bad debts increased to alarming numbers2. The capital that flew from the mortgage companies was provided by investors who gained confidence in the companies as a result of the rating provided by the credit rating agencies. These credit rating agencies took to taking money from mortgage and other financial institutions to provide a better picture of the organization. Also the credit rating agencies provided advice to such clients on ways to improve their rating by structuring securities to suit their own position3. It was this manipulation of the financial standards that subsequently led to the fall of the financial institutes within US. As US banks began to suffer losses and filed to bankruptcy, it impacted the rest of the world since US is the main guarantor of the financial world globally. Impact of Global Financial Crisis The global financial crisis though began from United States impacted the whole world. The most disastrous impact of the crisis was perhaps on the financial sector. Banks all over the world filed for bankruptcy including some of the biggest financial institutions such as the Lehman Brothers. Even though the IMF, World Bank and stable governments came up to help their own local banks and also banks in the emerging economies, but still capital was reduced to a great extent. This impacted the flow of capital in existing and new businesses around the world. Also as banks around the world were either closing down or merging into bigger institutions, the confidence of the consumers in the financial market was negatively affected. As banks and other financi ...Download file to see next pagesRead More