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International Financial Markets - Essay Example

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The peak of the crisis of European sovereign debt was realized on March 2012 when a greatest sovereign debt restructuring was carried out by Greece (Zettelmeyer, Trebesch, & Gulati, 2013). Apart from Greece, other European countries like Italy, Spain, Portugal, and Ireland are…
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Download file to see previous pages Furthermore some countries have ended up losing their investment status of grade. This incident has placed the international investors in alert. Even before the downgrading of the first country into a grade of non-investment, the stock market was down, and some countries even become close to lose their access to capital market. As a result of this the European politicians directed their blame to the crediting rating agency of making thee debt crisis worse.
Since 2011, the agency of rating has to regularly register with the European Security and Markets Authority (ESMA) which is also mandated with the further preparation of the legal action (Moloney, 2011). This regulation shows that the rating of credits have some control on the capital market. Some of the money market issue that was affected by the crisis that is to be discussed in this paper includes the macro-financial risk, intra-euro area financial flow, and collateral availability.
In most of the countries in euro the deposits owned by the domestic banks were stable between 2010 and 2011. However the domestic banks in Ireland and Greece heavily fell. Ireland and Greece were not in a position to replace the deposits that were lost with other market borrowing or wholesale and the gap that existed by borrowing from their central banks (Whittaker, 2011). The relocation of the market money into the central bank balance sheet caused an inter-central bank debt that was very high within the system of the euro.
Inter-commercial bank lending is a means of transferring money from area which have surplus to areas deficit areas (Friedman & Schwartz, 1970). For example if funds is withdrawn from the Greece bank and placed in the bank of Germany, this withdrawal will leave the Greece bank with deficit of money while the Germany bank will be in surplus of money. In the market condition that is normal, the ...Download file to see next pagesRead More
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