Black Monday Slides

8/2/2019 Black Monday Slides

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BLACK MONDAYBy: Rehan Ur Rahim

Sohaib AhmedUsama AkramHassan Akhtar


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Introduction

Black Monday refers to Monday 19 October1987

Stock markets around the world crashed Shedding huge volumes in very short time

The Dow Jones dropped by 508 points

(22.61%) Twice as bad as 1929 decline that had started

the Great Depression


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Internal Causes

Mergers and takeovers 1982

Use of Junk bonds and IPOs for Capital

required Derivative securities which include index

options in which stocks are not actuallybought but the rights to buy and sell thestock are bought.


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Internal Causes

Increase in use of Micro computers

The market was controlled and prices were

set by computers instead of investors When the price of stock fell below the preset

price the computer sold the stock which ledto carelessly buying and selling of stock sothe market crashed.


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Internal Causes

Illiquidity in the market as there were onlysellers and no potential buyers so there was ashortage of cash.

Another factor was the large trade deficit ofUS.

The currency was weakened which forced the

investors to pull out of the market. The high return on investment on long term

bonds caused less people to take risk andmake investments.


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Internal Causes

There was also an overvaluation of stocksbefore the crash in 1987

The price/earnings ratio and price/dividendratio were too high


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External Causes

Disputes between US and European countriesabout interest rates and foreign exchangerates.

Secondly there were also speculations aboutinflation in the economy.


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US government reaction

The US central bank provided liquiditythrough OMO.

Helped commercial banks by giving discountson heavy reserve needs.

Interest rates on short and long term financialinstruments were dropped provide liquidity

Eased credit conditions to ensure thatinvestors could continue operating.


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Reforms

Circuit breakers were introduced.

A mechanism by which trading would bestopped for 1 hour if the DJIA dropped morethan 250 points in one day.

It would again be stopped by 2 hours again ifthe DJIA dropped another 150 points making

it a total of 400 points in one day. The circuit breakers were installed primarily

to prevent extreme changes in the stockmarket.


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Reforms

A uniform margin requirement is anotherchange that was introduced after the crash.

It aims to reduce volatility for stocks, futuresand stock options.

After the crash, some stock exchangeschanged their computer systems in order to

improve data management, effectivenessand increase accuracy.


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Impact on the Economy

Expected Recession.

However, there was no recession within the next 2 years

Due to the intervention by the central bank of the U.S., theFederal Reserve.

Industries that were not directly tied to the stock marketswere not influenced.

Many U.S. corporations announced they would repurchasetheir own stocks, implying that they felt that the price dropwas unnecessary.

Moreover, continuous good news about the U.S. economyspeeded the recovery from the market collapse.


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Impact on the Economy

15,000 jobs were lost in the financial industry.

Some serious business lenders saw it as

another great depression But by mid 1990s the economy began to

grow again.


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22 Most Effected Stocks of

Dow Jones Index American Express Co. (AXP.N) - down 30.9

percent

Goodyear Tire (GT.N) - down 29.4 percent

Eastman Kodak Co. (EK.N) - down 29.1percent

Honeywell (then Allied Signal) (HON.N) -

down 28.4 percent Procter & Gamble (PG.N) - down 28.2

percent

3M Co. (MMM.N) - down 27.9 percent

International Paper (IP.N) - down 25.1percent

Navistar NAVZ.PK - down 25 percent

Coca-Cola Co. (KO.N) - down 24.5 percent

Alcoa Inc. (AA.N) - down 24.2 percent

International Business Machines (IBM.N) -down 23.2 percent

AT&T (T.N) - down 22.6 percent

United Technologies (UTX.N) - down 20percent

Exxon ( proceeding Mobil merger) (XOM.N)- down 19.5 percent

General Motors Corp. (GM.N) - down 18.9

percent Du Pont Co. (DD.N) - down 18.8 percent

McDonald's Corp. (MCD.N) - down 18.3percent

Merck & Co. (MRK.N) - down 17.9 percent

General Electric Co. (GE.N) - down 17.5percent

Chevron (preceding Texaco merger) - down16.7 percent

Altria (then Philip Morris) (MO.N) - down14.7 percent

Boeing Co. (BA.N) - down 11.75 percent
http://www.reuters.com/finance/stocks/overview?symbol=AXP.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GT.Nhttp://www.reuters.com/finance/stocks/overview?symbol=EK.Nhttp://www.reuters.com/finance/stocks/overview?symbol=HON.Nhttp://www.reuters.com/finance/stocks/overview?symbol=PG.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MMM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=IP.Nhttp://www.reuters.com/finance/stocks/overview?symbol=KO.Nhttp://www.reuters.com/finance/stocks/overview?symbol=AA.Nhttp://www.reuters.com/finance/stocks/overview?symbol=IBM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=T.Nhttp://www.reuters.com/finance/stocks/overview?symbol=UTX.Nhttp://www.reuters.com/finance/stocks/overview?symbol=XOM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=DD.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MCD.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MRK.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GE.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MO.Nhttp://www.reuters.com/finance/stocks/overview?symbol=BA.Nhttp://www.reuters.com/finance/stocks/overview?symbol=BA.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MO.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GE.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MRK.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MCD.Nhttp://www.reuters.com/finance/stocks/overview?symbol=DD.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=XOM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=UTX.Nhttp://www.reuters.com/finance/stocks/overview?symbol=T.Nhttp://www.reuters.com/finance/stocks/overview?symbol=IBM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=AA.Nhttp://www.reuters.com/finance/stocks/overview?symbol=KO.Nhttp://www.reuters.com/finance/stocks/overview?symbol=IP.Nhttp://www.reuters.com/finance/stocks/overview?symbol=MMM.Nhttp://www.reuters.com/finance/stocks/overview?symbol=PG.Nhttp://www.reuters.com/finance/stocks/overview?symbol=HON.Nhttp://www.reuters.com/finance/stocks/overview?symbol=EK.Nhttp://www.reuters.com/finance/stocks/overview?symbol=GT.Nhttp://www.reuters.com/finance/stocks/overview?symbol=AXP.N


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References

http://www.oppapers.com/essays/Black-Monday/121540

http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123

http://www.stockbreakthroughs.com/articles/1987-stock-market-crash.htm

http://www.accessmylibrary.com/article-1G1-54115260/market-crash-1987-changed.html

http://www.economist.com/node/9993586

http://online.wsj.com/article/SB119212671947456234.html

http://www.newspaperarchive.com/DailyPerspectiveFullView.aspx?ViewDate

=10/19/2007 http://www.greekshares.com/black_monday.php

http://www.reuters.com/article/2007/10/19/us-usa-markets-1987-dow-idUSN1930010920071019

http://money.usnews.com/money/business-economy/articles/2007/10/19/the-

lessons-of-black-monday
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inearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://ezinearticles.com/?Black-Monday---Stock-Market-Crash-of-October-19th,-1987&id=2204123http://www.oppapers.com/essays/Black-Monday/121540http://www.oppapers.com/essays/Black-Monday/121540http://www.oppapers.com/essays/Black-Monday/121540


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