WebThe financial crisis 0f is widely considered to be the worst financial crisis since the great depression. The effects of the financial crisis were cataclysmic it resulted in WebThe article “The Financial and Economic Crisis and Developing Countries” by Bruno Gurtner, explained the main causes of why developing countries are still going through WebThere were many economic and political factors that lead to the financial crisis of Specific regulations, companies overstepping their boundaries with leverage, and the
Financial Crisis Essay Example Pdf - Free Essay Example | blogger.com
There have been some major financial crises in the world in the recent past. The crisis is the European Monetary System that occurred infinancial crisis essay, The Mexican crisisthe Asian crisisand the recent global financial crisis The recent financial crisis has affected international trade. The financial crisis began in the United States in in the housing market resulting in foreclosures. The crisis continued to grow and eventually turned into a global financial crisis as well as an economic crisis. As a result, some major banks, insurance companies and investment houses faced bankruptcy while others needed financial aid to continue operating. Many businesses involved in international trade have been struggling financial crisis essay their financial management during the credit crunch because a business is supposed to remain successful even during crisis times.
The managers in businesses involved in international trade have had to make decisions to help their organizations stay afloat during the financial crisis. Economists are of the opinion that a financial crisis results from feeble economic fundamentals, financial crisis essay, for instance, fiscal deficit, reduced foreign reserve, and increased foreign debt among others. The financial crisis eased in but its effects were felt globally. The contagious effect means that when a financial crisis occurs in a country it creates a crisis in another country even if that other country has sound economic fundamentals. The financial crisis affects international trade greatly and this paper will focus on the effects of a financial crisis on international trade and barriers around the world.
The financial crisis causes a recession in the macroeconomy of countries. The financial crisis essay crisis effects are felt all over the globe and no country escapes the crunch. Countries are affected on a macroeconomic level and immediate problems are experienced such as bankruptcy, financial crisis essay. In addition, financial crisis essay, the financial crisis leads to problems in other sectors and affects investors, firms, productions, households and the whole economies. The economies of developing countries suffer most as they experience wide capital flight as investors pull out financial crisis essay investments. Furthermore, countries experience low prices in their exports, financial crisis essay. The prices go down as the banking system in a country experience the financial crisis that leads to its weakening and may lead to a collapse.
The weakened banking system may make a country weaken in its export capability. Thus, such effects make it necessary for governments in various countries to come up with rescue packages. Moreover, the banks financial crisis essay the guaranteeing of their deposits, financial crisis essay. Other actions taken by the government are injecting capital and restricting debts, financial crisis essay. The actions are taken to shield economies and cost the governments a lot of money and as they try to contain the panic phase that result from the financial crisis. For example, governments across the globe took measures to contain the recent financial crisis.
However, it is important to note that the cost of the actions that governments in both developed and developing countries took during the financial crisis are yet to be fully determined Nanto, During financial crisis, the exchange rate becomes uncertain as countries lose their grip on fixed exchange rates. The uncertainty of the exchange rate makes financial crisis essay importers and exporters vulnerable to greater risks at the international trade hence some avoid taking the great risks involved through reduction of trade financial crisis essay to minimize the exposure to risks.
The financial crisis affects the international trade through recession. Sudden stop means that the capital account becomes goes through reversal. A country that experiences the sudden stop sees its domestic demand for goods and services drops as well as its export and output capability. Moreover, the recession leads to bank runs as both local and foreign investors panic and rush to withdraw their money from the banks even before the projects they had invested in matures. Some investors manage to rescue their money while others suffer losses. The foreign investors withdraw their money and bring the economy down.
One way through which the international trade is affected is through the income channel. The income channel is affected when bank runs arise and banks are forced to liquidate their long term investments projects prematurely thus the depositors experience some losses. The local investors get lower incomes from their bank deposits and their demand for imports drops. Thus, through the income channel the international trade is affected by the decline in foreign trade. The way through which the international trade is affected is through the foreign capital flow. Even if bank runs do not occur, foreign investors withdraw their deposits from banks after the maturity of other projects, financial crisis essay. The withdrawal brings about an inflow of foreign investors but a bank run leads to premature withdrawal and leads to a reduced foreign investment.
Therefore, the through the financial crisis essay crisis the international l trade is affected through short-term stimulation of exports and a reduction in the same after the crisis eases. The third way through which the financial crisis affects the international trade is through the investment demand. During a financial crises investment declines and the demand on foreign goods takes a hit. The financial crisis affects imports in the long term financial crisis essay the investment demand channel. Thus, a country must look for ways to increase it exports in order to supplement financial crisis essay declining investment output.
The financial crisis affects the politics of a country within the political leadership as well as the regime, financial crisis essay. The crisis leads to discontent from citizens of many countries across the globe. Many people to lose employment and have trouble in finding new employment as many businesses lay off their workers as times became hard. In addition, people lose their wealth in both the real and financial assets. The crisis also leads to the decline in product prices hence businesses accrue loses and cannot operate efficiently. Consequently, financial crisis essay, due to the above problems people lose financial crisis essay in the leadership and regimes in their countries, which they accuse of failing to do enough to protect them.
The loss of faith in the regimes leads to political opposition in the countries democracies as people crave for new leadership to take the country out of its financial mess and save the livelihood of the people, which is threatened. As opposition of the current regime builds up extremist movements also come up to oppose the leadership of the country. Such movements thrive well in developing and poorer countries because the people become very vulnerable hence, it is easier for the extremist movements to recruit them.
Moreover, the unemployed young people are often influenced by radical religious movements to join the groups and oppose the western system through terrorist activities because the system is demonized and accused f the current problems facing such a country Nanto, The people are told that the only way out of the financial crisis is by opposing the western society. For instance, in the U. many people lost faith in the current President because immediately after he took office the financial crisis hit hard and many people lost employment as businesses sank. They doubted the ability of the president to lead them as they had a high expectation that things would change.
Therefore, the financial crisis causes political instability in country and the instability affects international trade as investors pull away from the unstable countries. The unstable countries also find it hard to get loans from international bodies to enable them trade at the international market. The financial crisis affects the country negatively leading to recession as all sectors become entangled in the crunch. On the other hand, the financial crisis causes the product prices to go down. The low prices lead to instability in the home countries as the economy of the countries stagnant.
Such countries are hence not able to get money to accomplish their target interests leading to negative consequences, financial crisis essay. Other products such as oil become very expensive during crisis times and the high prices in oil affect every sector in a country as everything else becomes expensive due to the high cost of oil. On the contrary, financial crisis can lead to an increase in a countries export in the short team after they devalue their currencies after the financial crisis ends. Meanwhile, the results of the high prices lead to inflation in a country.
Many people are left suffering as they fail to make ends meet and become very frustrated leading to demonstrations as experienced on the Arab world as people accuse reigning regimes of oppression that had led to many problems such as unemployment and high cost of living, which they could not afford anymore Nanto, The other effect of the financial crisis on the ruling regimes comes in through the actions they take to deal with the problem and hold on to power. The crisis helps the government by making it more powerful as people look to the state for financial rescue. For example, many nations across the world blame financial crisis essay United States for creating the financial crisis through its financial elite.
The governments are able to reignite nationalism in their citizens by blaming the U. for the crisis and hence strengthen their position through the support of the people. Moreover, financial crisis essay, as the economy is hit and the crisis bites, hard people expect the government to come in and take action. The dictatorial regimes are able to take advantage of the financial crisis to consolidate power Nanto, The financial crisis also leads to decline in economic neoliberalism. The interference of the government in business goes against the spirit of neoliberalism that supports a free market and non-governmental interference especially in the private sector. However, the recent financial crisis made governments across the world interfere even in the private sector in trying to control and avert the credit crunch.
It is also important to note that the market structure in the international trade will not change overnight because the governments have interfered but with the rise of regulation, the international trade is bound to experience a major setback as investors pull away due to the increase in trade barriers. Furthermore, many countries that had shifted from their socialist market model and adapted the western capitalist model may revert to their old model as they question their shift to the western model Nanto, The financial crisis leads to increased government regulation in trade and the private sector. The interference of the government in the trade means that the political class directly gets involved in decision making in companies because of the capital they inject to companies.
The ability of the political class and bureaucrats to make decisions at the company level is opposed by many people who accuse the government of favoring some companies at the expensive of more deserving companies. Hence, the government interferes even with the internal operations of the companies for instance, it has a say on the bonuses the executives in a company take home Shah, They may also affect the international trade by import reduction. Do governments not only interfere in financial crisis essay internal trade within countries, but also interfere with trade at the international. The financial crisis has led some governments to enforce non-tariff barriers in their bilateral and multilateral trade agreements, financial crisis essay.
The governments also resort to protectionism in order to keep their economies stable. For instance, the financial crisis gives countries a leeway for financial regulation abuse. The abuse occurs as governments provide their domestic firms with liquidity through bailouts in order to protect their domestic firms and in the process leave foreign firms vulnerable. The nationalization of financial institutions could also open doors for politicians to use the institutions to fulfill their political interests. Some of the measures taken by the governments come with conditions such as buying local goods, or producing locally to encourage people to support the domestic market and shun import goods, financial crisis essay.
Unfortunately, the citizens end up paying the cost of the public debt through future tax increases. The government forms trade barriers by restricting imports and hence countries that depend on exporting goods to such countries lose market affecting them negatively. The governments impose trade barriers financial crisis essay spite of the World Trade Organization rules, financial crisis essay, which seek to minimize trade barriers to give countries an equal opportunity to compete at the international trade, financial crisis essay.
The trade barriers include high tariffs for import goods that make it very difficult for exporting countries to make profits at the international market. Some of the sectors are exempt from the trade agreements hence they do financial crisis essay have to follow any rules and can impose heavy trade barriers.
The Financial Crisis of 2008
, time: 7:48Global Financial Crisis, Essay Example | blogger.com
WebThe financial crisis 0f is widely considered to be the worst financial crisis since the great depression. The effects of the financial crisis were cataclysmic it resulted in WebThe financial crisis effects are felt all over the globe and no country escapes the crunch. Countries are affected on a macroeconomic level and immediate problems are WebThe article “The Financial and Economic Crisis and Developing Countries” by Bruno Gurtner, explained the main causes of why developing countries are still going through
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