Report on Global Financial Crisis

8/6/2019 Report on Global Financial Crisis

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Table of contents

y Reason of choosing this topic

y Introduction

y The term Financial Crises4) Financial Crisis 2007- 20095) Causes of the crisis6) Thecri sis gett ing gl obal 7) The Fi nancial cris is and Pakist an:8) Sectoral impact of the crisis inPakistan:9) External sector impact

o Exportsii) Imports10)

y Financial Sector impact oni) Foreign exchangeii) Banking sector iii) Circular debtiv) Stock market:11)

y Inflation12) Economic business sector impacti)

y Impact on textile industry13) Social SectorImpacts14) Poverty and unemployment:y 15) IMF16)

y Technique to tackle the situation


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Reason of Choosing the Topic:

My topic of study is Impact of Financial Crisis in Pakistan. The reason of choosing this topic isthat it has a direct relationship with the poverty, unemployment, literacy, wealth distribution.

Executive Summary

The global financial Crisis in the whole world has come after the first recession in the world in

1930s. It has affected the poor areas of the world. People living under $2 per day have been

mainly affected. Pakistan has bad effects of this crisis. The poor people of the Pakistan got more

poor and unemployed.

We have carried out a study to find the relationship of the global financial crisis with the bad

condition of Pakistan. Pakistan got this adverse trend by the imports and exports. Pakistan was

totally depending on the imports and other countries raised the bill of imports. When we were

unable to buy these imports we got shortage of food due to unplanned budget. Both made the

situation more adverse. Unemployment and poverty took place when there were no resources

available to industry. The economic factors behind this issue were financial sector of Pakistan,

Capital Flows & Workers Remittances, Commodity Prices & Trade and External Financing.

Their determinants were; Impacts of the crisis on aggregate poverty, Impacts of the crisis on

growth and distributional impacts within countries. The determinants gave the clear picture of

the prior and current situation of the Pakistan. Techniques have been used to overcome the

situation. The mixed economy system has been followed by the other countries. Now

government is making intervention in the economy of these countries. The techniques to be

followed by the Pakistan are; give breaks in taxes, agricultural uplift, cash subsidies, easing the

monetary policy and increasing supporting programs for the labor intensive activities.


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Introduction

The Global Financial Crisis has been called by leading economists the worst financial crisis since the onerelated to the Great Depression of the 1930s. It contributed to the failure of key businesses, declines inconsumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred bygovernments, and a significant decline in economic activity. Many causes have been proposed, withvarying weight assigned by experts. Both market-based and regulatory solutions have been implementedor are under consideration, while significant risks remain for the world economy.

The collapse of a global housing bubble, which peaked in the U.S. in 2006, caused the values of securitiestied to housing prices to plummet thereafter, damaging financial institutions globally. Questions regarding

bank solvency, declines in credit availability, and damaged investor confidence had an impact on globalstock markets, which suffered large losses during 2008. Economies worldwide slowed in late 2009 andearly 2010 as credit tightened and international trade declined. Critics argued that credit rating agencies

and investors failed to accurately price the risk involved with mortgage-related financial products, andthat governments did not adjust their regulatory practices to address 21st century financial markets.

What is Financial Crisis:The term financial crises is broadly used for many things means if there is great loss happen thanits called financial crisis but its mainly related to banking panics. Other situations in which weoften use this term is in stock market crashes.

Financial Crisis 2006 2010The financial crisis of 2007-2009 has been called the most serious financial crisis since the greatdepression by leading economists, with its global effects characterized by the failure of key businesses declines in consumer wealth estimated in the trillions of U.S dollars, substantialfinancial commitments incurred by governments, and a significant decline in economic activity.


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Causes of the crisis:

It is not clear yet whether we stand at the start of a long fiscal crisis or one that will pass

quickly, like most other post World WarII recession.

1) Fundamental mispricing in the capital markets.

2) Mistakes made by the Fed and the others banks by keeping the federal funds rate too low fortoo long created bubble and housing bubble. In other words, with artificial low fed funds target,banks filled themselves on cheap funding and made cheap loans available.

3) There has been great disparity in the quantity and quality of loans in the recent years. In termsof quantity, there was an increase in low-rated issuances of shares from 2006-2010. Moreoverloans that were issued were mainly given to finance leveraged buyouts. Over the same period

average debt leverage ratios grew rapidly to levels never seen previously. In terms of quality,there was also a general increase in non documentation and high loan-to-value subprimemortgages.

4) Plus the failure to control poor underwriting standards in the mortgage markets means nodown payment, no verification of income, assets, and jobs, interest only mortgages, negativeamortization, and teaser rates were widespread among subprime, near- prime and even primemortgages.With defaults in interest payments and simultaneously in the Abs, pricesdrop drastically, leadingto a huge loss of wealth severity of the crisis.

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Report on Global Financial Crisis