The Issue of the Global Financial Crisis - Term Paper Example

GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INTERNATIONAL BUSINESS Introduction Schnabel (2002) says that the world is aware of the term global financial crisis and it became one of the most thought about terms when Wall Street crashed in the year of 2008. The situation as well as the major crisis as it can be defined in this manner speaks for itself. The financial crisis has started from wall street but it has spread it s wings in all over the world. The businesses, the trade, the microfinance businesses and the major stock markets as well are seem to be crashed and have suffered also because of the crises. It can be see that the financial breakdowns has been given the name of a crisis as it has struck the whole world with a peed and the major businesses have seen failures because of this crisis. This is an emergency situation in which many of the companies that were running there businesses successfully prior to the financial crisis are now in the condition that makes them reduce the production of their products or they are in the position of increasing the rates if their products which is not proving to be of too much help as the customers are also the group of the people who are suffering from the crisis. World Bank (1993) has said that the global financial crisis has not only effected the businesses but has effected many of the governments of the countries who because of the unavailability of the proper funds are unable to implement many of the policies that are needed to be implemented. It can be said that the crisis has its long lasting effects that began from zero but have gained the levels as the time is passing by. The markets that the businesses could gain are crashing and the bossiness can see no hope except for the mergers that might be one of the ways to survive or to bail themselves out from the situation. In this essay the financial crises and its global impacts are to be seen and the impacts especially on the businesses located on the international level are to be observed. Financial crisis Shiller (2008) includes that the financial crisis is the terms given to an emergency situation in which it can be said that many of the financial assets that the country has suddenly begins to lose the value that they have. In this case of the huge financial crisis the greater part of the value that the financial assets hold is lost. When the history is considered for any occurrence of the financial crisis than it can be seen that the banking crisis did occur in the 19th and 20th centuries. The financial crisis also accompanies with itself the crashes in the tern of finances other than the banking crashes and it is inclusive of the stock market crashes as well as the financial crisis related to the currencies. In the financial crisis when the country’s GDP is seem to be not having an improvement and that also within the two quarters than that is known as the period of recession for that particular country. Global financial crisis Stiglitz (2003) says that the recent global financial crisis that is being faced by the work these days started to have its roots in the year of July in 2007. The reason that has been noticed for this crisis has been that the United States financial investors had lost their confidence in the value of the securitized mortgages based in the united states that resulted in the credit crunch or the liquidity crisis. This made United States Federal Reserve, Bank of England and the European Central Bank rush of the capital into some of the major financial markets. The TED spread is an indicator that shows the credit risks in the economy of the country. This is the indicator which jumped to the highest value during the year of 2007 and it had gained even the highest ever even volatile values in the year of 2008. Wilkinson and Hughes (2002) say that it has been noticed that the values that were shown by the indicator were as high as 4.7% in the year of 2008 and this value has be the highest since the history does not show any higher value than this. In the same year and the month of October the stock markets crashed all over the world and therefore the credit situation deepened and as a result of this the banks crashed as well the financial investors and the insurance companies had seen the major of the losses in the past year. World Bank (1993) includes that Timothy Geithner, who has been the president of the US Treasury and is currently the CEO of the new York federal reserve bank, has been pointing out towards the main reasons of the global financial crisis that has got the world by storm. It has been included in one of the speeches that the main reasons for the financial crisis is that the credit markets have been frozen so as to run the parallel banking system as this system has been known as the shadow banking system. There have been some entities in the parallel banking system responsible for this freezing of the credit markets and these entities were the one critics to the credit markets thereby responsible for the crash of the financial markets. Schnabel (2002) says in another explanation, it has been said that the financial crisis is one symbol of another bigger crisis to come. The global financial crisis is defined in the terms of the crash of the crash of the capitalism itself. An Egyptian economist Samir Amin has been pointing out to the fact that there has been a significant decreases in the GDP of the western countries since the time of the 1970s and this has been responsible for the growth of the surplus capital that did not have very good markets where it could be invested. The alternative in this case had been to make the capital reach the financial markets and it became to be more advantageous. A well known political economy analyst John Bellamy Foster, who is also the editor of the Monthly Review has said that the decrease in the GDP of the western countries has been due to the greater increase that has been noticed in the market saturation. Impacts on the business across the borders: Analysis Stiglitz (2003) says that many of the critical financial analyst say that if the liquidity crisis or they credit crunch continues than the effects that the global financial cries might increase on the global scale. The global impacts that gave been observed in this case is inclusive of many of the major market share holders to get the debts form the governments and they make sure that they secure themselves financially in this time. Many of the companies have had the bailouts from the financial crisis successfully and these include the General Motors, AIG, Citygroup, Bank of America and Chrysler. In addition to this, there is long list of the companies which could not manage the financial crisis and have failed in any more productions in the markets and the list is inclusive of New Century Financial Corporation, American Freedom Mortgage, American Home Mortgage, Bernard L. Madoff Investment Securities LLC, Lehman Brothers, Linens 'n Things, Mervyns, Washington Mutual, Icesave, Kaupthing Singer & Friedlander, Yamato Life, Circuit City and so on. Impact on microfinance Schnabel (2002) says that the impacts that have been noticed on the microfinance institutions that are present all around the globe are very different as compared to the other institutions. The effects depend on some of the liabilities that the institution has inclusive of the financial status of the institution and the financial strength of the clients that the institution has. The microfinance institutions have come up from the crisis in an intact manner and it has been said that the MFIs are still hoping for the best in the case of the betterment in the crisis until the September of the recent year. Impact on trade Wilkinson and Hughes (2002) say that in the case of the trade the main clients that the manufacturers have include the logistics, the importers, wholesalers and the retailers. The managers based in the manufacturing industries have decided in the time of crisis that the prices of the products should be decreased as there are many reasons associated with it. Because if the global financial crisis the effect has been on the prices of the raw materials that have decreased in the markets as a result of which the manufacturers seem to be in the loss. The rates of the exchanges and the trade case in this matter have also risen. Owing to the financial crisis the consumption end of the necessities has much lesser buying power therefore the suppliers have also decide to decrease the process. Impact on social help funding Shiller (2008) says that the facts and the figures have been provided by the Centre for Global development where it has been mentioned that for the purpose of company bailouts a trillion dollars are being spent so the money is nowhere present for the humanitarian rescue. US have recently had a US$ 700 billion bailout plan and a £400 billion has been announced by the UK authorities. This makes the credibility at the end if the donors to be at stake. Conclusions The financial crisis has started from wall street but it has spread it s wings in all over the world. The businesses, the trade, the microfinance businesses and the major stock markets as well are seem to be crashed and have suffered also because of the crises. It can be see that the financial breakdowns has been given the name of a crisis as it has struck the whole world with a peed and the major businesses have seen failures because of this crisis. It has been included in one of the speeches that the main reasons for the financial crisis is that the credit markets have been frozen so as to run the parallel banking system as this system has been known as the shadow banking system. The impacts that have been noticed on the microfinance institutions that are present all around the globe are very different as compared to the other institutions. The effects depend on some of the liabilities that the institution has inclusive of the financial status of the institution and the financial strength of the clients that the institution has. References Schnabel, A. (2002). Civil society and global finance. Routledge. Shiller, R. (2008). The subprime solution: how today's global financial crisis happened, and what to do about it. Princeton University Press. Stiglitz, J. (2003). Globalization and its discontents. W.W. Norton. Wilkinson, R., and Hughes, S. (2002). Global governance: critical perspectives. Routledge. World Bank. (1993). Global economic prospects and the developing countries. World Bank Publications. Read More