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Global Financial Crisis - Coursework Example

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The current paper presents evolution of the financial crisis; causes of the financial crisis in Western industrialized countries; regulatory failure in the western industrialized countries and immediate tasks to overcome the financial crisis due to regulatory failure…
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Global Financial Crisis
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Global Financial Crisis

Download file to see previous pages... The intention of this study is a financial crisis as a situation where economic markets are interrupted because of controlled credit to businesses and households and the real markets of services and goods are unfavourably affected. There are immense causes or roots available for a financial crisis irrespective of any nation. Basically, the structural factors like confusion arising between the free and the continuous deregulation of markets, a remarkable rise in the role of investment markets prevailing in both banking and non-banking economic organisations, rapid use of new global monetary mechanisms, declining transparency of the free markets, increasingly spreading out high business risks, inequality in a particular businesses origination and distribution factors among others are a few of the major causes or roots of a financial crisis. Also the general factors like regular conflicts regarding the market interests among the free and capital market contributors, deviation between individual bank interest rates with central bank’s policy rates, extremely minimum risk-free interest rates in major economies like the US and Japan among others, growing gap between maximum capital profits and low cost of capital, spreading out unfavourable low credit difficulty across all mechanisms also constitute a few of the crucial roots of a financial crisis that are prevailing in a particular organisation or in a particular nation. (Alliance of Liberals and Democrats for Europe, 2008). In the paper, the regulatory failures that especially the western industrialised countries faced and which led to the universal economic crisis in the year 2008-09, is examined along with the findings about the causes or roots of the arising financial crisis along with certain immediate tasks that should be followed in order to cope up with the financial crisis has also been discussed. Evolution of the Financial Crisis The international financial crisis was originated with the ‘sub-prime mortgage’ crisis and was eventually faced especially by the western industrialised countries during 2008-09. With the result of increase in rate of interests along with decline in home prices, there was a sharp jump in non-payment and foreclosures. In that particular period, there arose certain doubts regarding the liquidity of those assets and eventually became tough to fetch adequate price (Rangarajan, 2009). As a result of raising this crucial doubt, it gradually started to affect the prevailing institutions for their enormous investments made in their respective products. Thus, the entire financial system of the western industrialised countries was recognised to be in an acute crisis. There was a mutual distrust among the financial institutions in the western countries which led to freezing up of several markets including the inter-bank market. This crisis in a financial system had moved to affect the real sectors in various significant methodologies (Rangarajan, 2009). Due to the evolution of financial crisis during 2008-2009 in the western industrialised countries, the emerging market risks, the bank lending flows, the foreign direct investment (FDI) flows and the export volumes among others had turned negative. The economic activities were contracted rapidly and particularly the western industrialised countries experienced large decline in their respective industrial production which weakened their credit growth (Berglof, 2010). Causes of the Financial Crisis in Western Industrialised Countries The financial crisis has been brought about by a combination of unsuitable monetary policies, extreme risk taking of certain financial organisations and ...Download file to see next pagesRead More
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