How did the recent financial crisis affect Financial Markets and institutions - Essay Example

The difference in interest rates has led to different problems and difficulties in the international financial market. Further on, another difficulty was caused by a greater demand for U.S. $ by oil importers thus leading to the U.S. $ currency devaluation, the yen Japan, the euro and the pound sterling. Therefore, market and capital markets suffered great losses and it was necessary to find a way out of this situation. At the beginning of financial crisis, the American society still had a hope that future elections of the President would facilitate it.

Unfortunately, the impact of financial crisis of 2008-2009 still echoes in the world’s economy. There is a tendency to reduce the difference between the interest rates. Moreover, “the securities market has been greatly influenced by the devaluation of the assets of certain companies established by banks for loan securitization” (Bloom & Schirm, 2010). In the period between 2004 and 2007 the size of loans has increased from 60% in revenues to 90% respectively (Financial Crisis: Let's Get to the Root Cause, 2008).

Furthermore, a poor management system of the loan system has also negatively influenced on the financial system. In order to facilitate the complexities occurred in the world’s bank and financial system it is possible to work in two main directions: “continue economic accounting real, if only the existing level now being maintained; and involve as many as possible capital in the economy” (Kuttner, 2009). In order to renovate a proper functioning of investment banks, such as Lehman Brothers, Merrill Lynch and American International Group (AIG), the U.S. government invested $85 billion in this sphere (Trussel & Rose, 2009).

Unfortunately, banks of the country have fallen apart like a house of cards. Almost nineteen banks failed till November 2008 (Swagel, 2009). Therefore, a public confidence in bank system has gradually failed. A further interaction between international capital markets and financial institutions was full of complexities and the reasons for that should be found on political and economical levels. Political reasons for financial crisis are evident. These are political constraints. A complicated relationship between the congressional leadership and President Bush and his White House staff made 2007 an unconstructive year from the perspective of economic policy, although, ironically, it had the effect of making possible the rapid enactment of the early-2008 stimulus: Democratic leaders by then appeared to be eager to demonstrate that they could govern effectively” (Jackson, 2010).

Administration’s deliberations were not facilitated even in time of financial crisis worsening. On the governmental level financial crisis could be solved in terms of mortgage refinance programs and investments in banking and job-creating systems (Kawa, Vanbever, 2010). Therefore, the influence of a global financial crisis has greatly affected on money and capital markets. Deposit and non deposit taking institutions have also been influenced greatly by financial crisis. State commercial banks have the main goal to increase profits and satisfy the needs of public by providing deposit options.

Unfortunately, firms and individuals have decreased the level of deposits “